Shari'a and politics in modern Indonesia [1a ed.] 9789812301888, 9812301887, 9789812302168, 9812302166

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The Institute of Southeast Asian Studies was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of sociopolitical, security, and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the 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. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute’s chief academic and administrative officer.

SOUTHEAST ASIAN AFFAIRS 2003 EDITORIAL COMMITTEE Chairperson

K. Kesavapany

Editors

Daljit Singh Chin Kin Wah

Production Editors

Roselie Ang Rahilah Yusuf

Committee Members

Russell Heng Hiang Khng Denis Hew Lee Hock Guan Tin Maung Maung Than

© 2003 Institute of Southeast Asian Studies, Singapore

INSTITUTE OF SOUTHEAST ASIAN STUDIES

ISEAS Library Cataloguing-in-Publication Data Southeast Asian affairs. 1974– Annual 1. Asia, Southeastern. I. Institute of Southeast Asian Studies. DS501 S72A ISSN 0377-5437 ISBN 981-230-216-6 (softcover) ISBN 981-230-217-4 (hardcover) First published in Singapore in 2003 by Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: 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. © 2003 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.

Typeset by International Typesetters Pte Ltd. Printed in Singapore by Markono Print Media Pte Ltd.

© 2003 Institute of Southeast Asian Studies, Singapore

FOREWORD The editors are to be commended for publishing the thirtieth issue of Southeast Asian Affairs at a timely moment. The articles contained in this issue are a reflection of the rapid and dramatic developments that have occurred over the past one year, both within and outside the region. The region remained preoccupied with the economic downturn, terrorism, and militant Islam. Efforts to revitalize ASEAN continued, with some hopeful signs that the major powers were paying more attention to the grouping. I hope, as in the past, Southeast Asian Affairs continues to be a journal of interest for scholars, policy-makers, the business community, and the media. While thanking the authors for their articles, the views reflected therein do not necessarily reflect the views of the Institute. K. Kesavapany Director Institute of Southeast Asian Studies June 2003

© 2003 Institute of Southeast Asian Studies, Singapore

CONTENTS FOREWORD INTRODUCTION THE REGION Southeast Asia in 2002: From Bali to Iraq — Co-operating for Security Chin Kin Wah

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Economic Overview of Southeast Asia in 2002 Tham Siew-Yean

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India’s Relations with Southeast Asia Take a Wing Satu P. Limaye

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Maritime Piracy in Southeast Asia Carolin Liss

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BRUNEI DARUSSALAM Negara Brunei Darussalam: Socio-Economic Concerns Amid Stability and Plenty Hamzah Sulaiman

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CAMBODIA Cambodia: Hun Sen Firmly in Control Milton Osborne

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INDONESIA Indonesia in 2002: Megawati’s Way Anthony L. Smith

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Indonesia: The Regional Autonomy Laws, Two Years Later Gary F. Bell

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Laos: Mired in Economic Stagnation? Bertil Lintner

135

LAOS

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MALAYSIA Malaysia in 2002: Bracing for a Post-Mahathir Future Maznah Mohamad

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MYANMAR Myanmar: Reconciliation — Progress in the Process? David I. Steinberg

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Myanmar and China: A Special Relationship? Tin Maung Maung Than

PHILIPPINES The Winds of Change in the Philippines: Whither the Strong Republic? Mely Caballero-Anthony Philippine–American Security Relations After 11 September: Exploring the Mutuality of Interests in the Fight Against International Terrorism Noel M. Morada

SINGAPORE Crisis, Self-Reflection, and Rebirth in Singapore’s National Life Cycle Kenneth Paul Tan Singapore’s Troubled Relations with Malaysia: A Singapore Perspective Chang Li Lin

THAILAND Thailand: Democratic Authoritarianism Thitinan Pongsudhirak Some Reflections on the Thai Monarchy M.R. Sukhumbhand Paribatra

VIETNAM Vietnam: The Stewardship of Nong Duc Manh Carlyle A. Thayer SOE Equitization in Vietnam: Experiences, Achievements, and Challenges Vu Quoc Ngu

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Introduction

INTRODUCTION The year 2002 opened with expectations of economic rebound in Southeast Asia after a year of generally sluggish growth but by the second quarter it was becoming clear that the three traditional engines that drove regional economic growth were spluttering — the U.S. economy did not sustain the hoped-for growth; Japan continued to be mired in recession; and Europe was experiencing economic slowdown. The political and economic dynamics were further complicated by the spectre of international terrorism, which acquired strong regional resonance after the devastating Bali bombings in October. The Bali bombings refocussed attention on the connections between regional and global networks of terror. While not all regional governments necessarily shared the same domestic concern with Muslim militancy or radicalism, the challenge of resurgent political Islam and the intensified religiosity among Muslim populations in the region could not be dismissed. Fortuitously the external security environment of Southeast Asia remained relatively stable during this time. The new global challenge posed by terrorism resulted in a positive shift in relations among the major external powers — most notably between the United States and China. The threat of international terrorism became a point of overlapping though not necessarily congruent major power security interests. It also tempered somewhat, especially after the Bali bombings, regional differences towards security co-operation with the United States. But differences in domestic political circumstances did complicate attempts at a coherent regional response. If 2002 began with regional anticipation of the political fallout of the war against international terrorism, it ended with nervous tension over the imminence of war in Iraq. The year also saw ASEAN continuing to address the sense of drift. Persisting economic strains, the pressure of domestic politics, and a new intramural competitiveness also had their negative effects on certain bilateral relations. Malaysia–Singapore differences centred on the pricing of Malaysian water supplied to Singapore and rival claims over Pedra Branca/Pulau Batu Putih were among the irritants that resurfaced during the year. Malaysia’s relations with Indonesia and the Philippines also soured over Kuala Lumpur’s mass deportations of illegal Indonesian and Filipino migrants. In mainland Southeast Asia border tensions between Thailand and Myanmar led to the closure of their common border for nearly five months. However, strains in bilateral relations did not immobilize ASEAN. Also, one hopeful development in 2002 was that extra-regional powers had not written off ASEAN as a collaborative region for mutual economic gains. China, Japan, the United States, and India courted ASEAN with offers of free trade agreements and new economic

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partnership pacts. Such overtures underlined for ASEAN the importance of enhancing regional integration and competitiveness if it were to ride on such opportunities. Among the more important factors shaping the fortunes of the individual countries of Southeast Asia to varying degrees were the lingering consequences of the Asian economic crisis of 1997–98, the pull of foreign direct investments to China, the challenge from political Islam, and the threat of terrorism. However, equally important were the quality of institutions and governance and the will to carry out reforms. Indonesia, the region’s biggest country and key member of ASEAN, presented a mixed picture. On the positive side, macroeconomic stability was maintained, there was a new recognition of the reality of the terrorist threat to the country, significant progress was made in uncovering the network behind the Bali bombings, the Malino peace agreement was signed to end the fighting in Maluku, and a ceasefire agreement, though fragile, was reached with the Aceh rebel movement. However, investor sentiment, the key to economic recovery, was weak. Foreign and domestic investment approvals declined significantly, and there were reports of Japanese and Korean companies relocating investments out of Indonesia. Implementation of the necessary legal and economic reforms was either lacking or slow. With calls mounting for the end of the International Monetary Fund (IMF) programme when it runs out at end of 2003, the future prospects for continued reform did not look good, especially since the run-up to the elections of 2004 is likely to lead to populist posturings. Malaysia registered a relatively healthy 4.2 per cent economic growth, cleaned up most of the bad loans in the banking system, and made progress in financial restructuring. It was also on top of the terrorist problem within its borders through effective action by an efficient Special Branch. The year saw Dr Mahathir Mohamad signalling the coming end of an era when he announced that he would step down from his government and party posts at the end of October 2003. His successor, Deputy Prime Minister Abdullah Ahmad Badawi, will inherit formidable challenges. They include economic sustainability and survival in an era of severe competition for export-oriented production from low wage countries like China, Vietnam, and India, and the challenges from political Islam, including winning back the Malay ground lost to the Parti Islam SeMalaysia (PAS) in the 1999 general election. Economic imperatives demanded further opening up of the country to market competition but such a course could erode the special position of Malays, making recovery of Malay support for the United Malays National Organization (UMNO) more difficult. This, together with UMNO’s greater dependence on the non-Malay, especially Chinese, political parties in the multi-ethnic coalition, the Barisan Nasional, could place new strains on race relations. Thailand saw a robust consumption-led economic growth, though this was expected to moderate in 2003. However, restructuring of bank debt has been

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slow and high corporate and public debts remained a source of concern. Prime Minister Thaksin Shinawatra and his Thai Rak Thai party-led coalition strengthened their positions in the political system. Evident was the emergence of a strong government with Thaksin’s personal stamp promising to deliver economic and social change. Critics were however concerned about its authoritarian tendencies and the centralization of power under Thaksin. In the Philippines, President Gloria Macapagal-Arroyo continued to struggle against almost impossible odds. The economy faced declining foreign investments, corruption, poor tax collection, and weak infrastructure. The situation was compounded by political violence and acts of terrorism by the Abu Sayyaf Group and the Moro Islamic Liberation Front, both with links with the Al-Qaeda. Meanwhile the New People’s Army of the Communist Party of the Philippines remained a threat. The integration of the newer members into the ASEAN mainstream seemed slow and problematic. Myanmar essentially remained in the state of stasis that it has been for over a decade. The year 2002 saw the release of National Democratic League leader Aung San Suu Kyi from house arrest, and the placing under house arrest of former General Ne Win, a decisive influence in Burma for over four decades, together with his influential daughter Sandra Ne Win. The implications of the latter development for the Myanmar power structure were still unclear at the end of the year when Ne Win passed away. The release of Aung San Suu Kyi on the other hand did not lead to any significant breakthrough in the political impasse between her and the junta. The preoccupation in Vietnam, the largest country on the mainland of Southeast Asia in terms of population, was to make the economy and governmental system work more efficiently and with greater accountability, but within the ambit of one-party Communist rule. In Cambodia Prime Minister Hun Sen strengthened his dominant position but the country continued to be plagued by poor governance and major social problems. Laos, resisting the necessary reforms, was suffering economic stagnation. Southeast Asian Affairs 2003 comprises ten country surveys and six special theme articles. Issues are also examined from a regional perspective in the first four chapters of this volume. We thank the authors for their contributions. We also thank ISEAS Research Assistants Gerard Ong, Ravi Menon, and Maghaisvarei Sellakumaran for editorial assistance for some chapters in this volume. Daljit Singh Chin Kin Wah Editors Southeast Asian Affairs 2003

© 2003 Institute of Southeast Asian Studies, Singapore

THE REGION

Southeast Asian Affairs 2003, pp. 3–23

SOUTHEAST ASIA IN 2002 From Bali to Iraq — Co-operating for Security

Chin Kin Wah

Introduction Globalization thickens interconnectivity among peoples and between nations but also accelerates the process of change in both the domestic and international realms. For a fast globalizing Southeast Asia, turning points have quickly become new defining moments but not always for the better in terms of security and growth. The region’s recovery from the destabilizing effects of the 1997/98 Asian economic/financial crisis had been patchy, and although by 2002 most gross domestic product (GDP) levels had edged back to pre-crisis levels, per capita incomes had not and unemployment was on the rise. The 3.5 per cent growth in Indonesia was achieved over a low baseline. Its path towards economic restructuring, sustained economic recovery, and political stability remained tortuous. On the road to economic recovery two developments set back confidence and fuelled uncertainties. The Al-Qaeda terrorist attacks on the United States on 11 September 2001 (commonly referred to as “9/11”) opened a new phase of international insecurity. How the United States would pursue the war against global terrorism and with what impacts on the Muslim world fuelled uncertainty. The more open regional economies focussed on the consequences for global travel, business confidence, and the international economy. In retrospect neither the United States nor the most open regional economy, Singapore, was too seriously affected. Within a year both economies had rebounded with Singapore in the third quarter of 2002 seemingly headed for a 4 per cent growth.1 In 2002 the Malaysian economy grew by 4.2 per cent while the fastest regional growth rate of 7 per cent was recorded by Vietnam. However, the terrorist bombings in Bali on 12 October 2002, which killed 202 people, many of them foreign tourists including 88 Australians, dampened expectations of a rebound as Southeast Asia initially acquired an undifferentiated image in the minds of foreign investors and in travel advisories as an insecure region. American concerns that parts of maritime Southeast Asia with their local history of Muslim militancy and rebellion against central authority were vulnerable to penetration by the Al-Qaeda network in search of a “second front” resurfaced following the Afghanistan campaign which commenced in October 2001 and resulted subsequently in the destruction of the Taliban regime and disruption of the Al-Qaeda network. The year 2002 began with Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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regional anticipation of the political fallout of the war against international terrorism and ended with nervous tension over the imminence of war in Iraq. However, it was the October Bali bombings that reignited attention on the connections between regional and global networks of terror through the Jemaah Islamiah (JI) and persuaded those in denial mode to re-examine the threat. While not all regional governments necessarily shared the same domestic concern with Muslim militancy or radicalism (not all of which manifested in terrorism), the challenge of resurgent political Islam and the intensified religiosity among Muslim populations in the region had to be reckoned with, particularly in the political calculus of Muslim-dominant multi-ethnic states. While the vast majority of Muslim populations in the region are overwhelmingly moderate, globalization has sharpened their sensitivities towards and awareness of discontents in the Muslim world and resentments of America. It is the work of the radical few operating in the sea of the moderates that proved most destructive. Fortuitously the external security environment of Southeast Asia continued to remain relatively stable during this time. The Sino-American turbulence of the previous April faded into the background with the new global challenge posed by terrorism after 9/11 resulting in a positive shift in relations among the major external powers — most notably the improving Sino-American relationship which remains the most important underpin to a stable external security environment of the region. The threat of international terrorism soon became a point of converging major power security interests. The American-led war against the Al-Qaeda resonated with China’s concern with the threat posed by Muslim separatists in Xinjiang and Russia’s military preoccupation with Chechen separatists whose challenge to Moscow was most dramatically highlighted by their hostage taking in a Moscow concert hall in October 2002. The spectre of international terrorism especially after the Bali bombings also tempered somewhat regional differences towards security co-operation with the United States. However, new controversies in subsequent months over America’s growing assertive, unilateralist drive towards war in Iraq opened new fault lines within the region and threatened to detract from a coherent response to the terrorist challenge. The year also witnessed the Association of Southeast Asian Nations (ASEAN), continuing to address albeit fitfully the sense of drift and attempting to regain its relevance and coherence, which had been adversely affected by the earlier regional economic crisis. Persisting economic strains, the pressure of domestic politics and a new intramural competitiveness also had their negative effects on certain bilateral relations among the more contentious, of which were those between Malaysia and Singapore at the ASEAN core. In December shortly after the International Court of Justice awarded the islands of Sipadan and Ligitan to Malaysia over Indonesia, Malaysian public attention was reawakened over the dispute with Singapore over ownership of the strategically located island of Pedra Branca/Pulau Batu Putih. This, following a year of

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protracted inconclusive negotiations over the price of Malaysian water supplied to Singapore, marked a nadir in their bilateral relations. However, such setbacks did not immobilize ASEAN. Also, one hopeful development in 2002 was that extra-regional powers had not written off ASEAN as a collaborative region for mutual economic gains. On the contrary China, Japan, the United States, and India competed for its attention with offers of free trade pacts and new economic partnership agreements. While these overtures might reflect a new dynamic on the geo-economic plane, they also opened new opportunities for ASEAN in search of growth and economic security. More importantly they underlined for ASEAN the importance of enhancing regional integration and competitiveness if it were to ride on such opportunities. The External Security Environment Continuing improvement in relations among the major Asia-Pacific powers during the year contributed positively to ASEAN’s external security environment. Moreover there were no disruptive conflicts or disputes between the region and the major external powers. After the tensions of the previous April over the collision of a U.S. reconnaissance plane with a Chinese jet fighter over the South China Sea, 2002 witnessed a return to a measure of calm, even limited co-operation, in Sino-American relations. While China saw good tactical sense in avoiding external complications with its impending entry into the World Trade Organization (WTO) and anticipated major domestic leadership transition, awareness that America’s global security preoccupation after 9/11 had shifted away from the so-called “China threat” also made for an easier adjustment. Their heightened though separate concerns with international terrorism were reflected in their intelligence sharing, in China’s unprecedented albeit cautious support for American military action in a third country (i.e., Afghanistan) and muted acceptance of a new American presence in Central Asia as well as the re-emergence of a limited American military profile in the Philippines. The United States for its part sought to restrain Taiwan President Chen Shui-bian’s independence rhetoric, refrained from opposing China’s bid for the 2008 Olympics, and in concession to China’s security interests added the Eastern Turkistan Islamic Movement in Xinjinag to its list of terrorist organizations. China in turn tightened controls on dual-use missile technology export and further regulated exports of dual-use chemical and biological materials. A high point in a year of warming Sino-American relations was Chinese President Jiang Zemin’s visit in late October to the United States, which included the honour of his being the first Asian leader to be received at President George W. Bush’s Texas ranch at Crawford. More substantively Bush announced for the first time that he would not support Taiwan’s independence.2 Resumption of Sino-American military contacts and dialogues soon followed. Chinese leaders were nevertheless careful to emphasize to the United States, the importance not only of restraint in the use of force but also for a multilateral

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approach in the war against terrorism. China was also reluctant to openly back the expected American-led war against Iraq. Still, for some Southeast Asian governments previously discomforted by volatility in Sino-American relations, the return to a more stable relationship between Beijing and Washington was a welcome development moderating likely dilemmas in their growing security ties with the United States. For Japan, 9/11 carried reminders of its own vulnerability to urban terrorism most notably the 1995 poison gas attacks by the Aum Shinrikyo group. More importantly it provided an opportunity for consolidation of the security relationship with the United States beyond the old Japanese resort to “chequebook diplomacy”. Growing concern as the year unfolded, over an unpredictable, recalcitrant regime in Pyongyang harbouring a nuclear weapons programme besides posing a missile threat to South Korea and Japan, further underlined the importance of closer co-operation with the United States. Under the hurriedly passed Anti-Terrorism Special Measures Act, which came into effect the previous November, Japan provided unprecedented rear-guard assistance by deploying three destroyers and two naval supply ships to the Indian Ocean to support allied forces engaged in combat in Afghanistan. By December 2002 Tokyo further signalled tacit support for an impending American-led war in Iraq by dispatching an advanced Aegis-class destroyer to replace one of its three destroyers in the Indian Ocean.3 Despite deep suspicions of the strengthening U.S.–Japan alliance, China underplayed its public responses. With reference to the latest Japanese deployment, the Chinese Foreign Ministry hoped that Japan would “strictly abide by its exclusively defensive defence policy … and exercise prudence over these matters”.4 Closer to its heartstrings, China was less inhibited in expressing consternation over Koizumi’s April visit to the Yasukuni shrine which commemorates Japan’s war dead and popularly associated with rightwing militarism.5 Expressions of Chinese displeasure were to lead Koizumi to put off a visit to China in September to commemorate the thirtieth anniversary of the normalization of Sino-Japanese relations. In contrast to Northeast Asia, the ASEAN states were generally less sensitive to the memory of Japan’s World War II aggression and more sanguine towards an enhanced Japanese security role if developed in tandem with the United States, given the post-9/11 security concerns. Singapore in early 2002 even offered Japan the use of its naval facilities.6 Nevertheless what appeared to be visceral Chinese reactions to Japan’s historical past had re-emerged at a time of regional exposure to an underlying Sino-Japanese competitive dynamic. Japan seemed in danger of being eclipsed in the region’s diplomacy arena by a fast rising China. It has seen its international profile stymied and confidence eroded by persisting economic recession, and failure to effect deep economic and financial reforms. In 2002 China’s attempts to engage ASEAN positively on the economic and diplomatic fronts seemingly upstaged Japan despite the latter’s sizeable economic stakes in the region. Japan’s “stasis” belies the fact

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that its economy is the second largest after the United States, almost five times larger than China’s, and eight times larger than all ASEAN economies combined. Japan is currently ASEAN’s largest source of imports and secondlargest export market while constituting one of the largest sources of foreign direct investments (FDI) to the ASEAN region. Since the end of the Cold War, Moscow’s profile in the region has been much diminished despite its attainment of dialogue partnership with ASEAN in July 1996 and membership in the ASEAN Regional Forum (ARF). However the post-9/11 climate of improving external power relations, owed as much to Russia’s attempts to work co-operatively with the United States and the North Atlantic Treaty Organization (NATO) while strengthening links with China. In the immediate aftermath of 9/11, President Vladimir Putin sought to reset the framework of co-operation with the United States while hoping to carve out some role for Russia in world affairs. As Russia and the United States found common cause in their respective wars against terrorism and with Russian interest changing towards a new positive relationship with an expanded NATO, they were able to sideline the hitherto contentious issue of national and theatre missile defence systems to focus instead on nuclear force reductions. The Bush-Putin summit in Moscow in May, culminated in a nuclear disarmament agreement to accelerate cuts in long-range nuclear warheads. They also proclaimed a new strategic relationship between them. Despite Putin’s Westpolitik he mindfully reaffirmed a partnership with China as the year progressed and it became clearer that the United States might lead a war against Iraq without U.N. backing. Having to cope with a hegemonic America in a unipolar world pointed to the usefulness of a closer Sino-Russian strategic and economic partnership as reflected in Putin’s visit to China in December 2002 on the heels of China’s leadership transition. In their joint declaration, both veto-wielding members of the U.N. Security Council reiterated that the Iraq question could only be resolved through political-diplomatic means, as well as in keeping to U.N. Security Council resolutions.7 They also urged the international community to consider separatists operating within their borders as terrorists. As long-standing friends of North Korea, they were increasingly exercised by Pyongyang’s erratic behaviour on the nuclear issue and its deteriorating relations with the United States. The Putin-Jiang declaration underlined the importance of the non-nuclear status of the peninsula and non-proliferation of weapons of mass destruction — positions shared by the United States and Japan. While the ASEAN-driven ARF (which includes both Koreas in its membership) has not been able to make meaningful contributions to resolving the security concerns of the Korean peninsula, converging major power concerns over the challenge posed by a putative nuclear North Korea, would at least hold forth the hope of a better co-ordinated approach among the major external powers in dealing with a security dilemma on ASEAN’s northeastern flank.

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In the great power equation, some regional states might have been tempted to see in Russia an opportunity, albeit limited, to distance themselves somewhat from an assertive United States. Malaysia, as part of its force modernization programme, ordered Russian (as well as British) missile systems worth US$346 million and considered a deal to buy Russian Sukhoi SU-30 fighter jets instead of American planes. Constrained by the U.S. suspension of military-to-military relations with and a ban on arms transfers to Indonesia, Jakarta relooked Russia as an alternative arms supplier, reviving previously shelved thoughts of purchasing Sukhoi-30 fighters. However, the lack of strong fundamentals in Russia’s economic relations with the region hampered a broadening of linkages with ASEAN8 and even with a traditional friend like Vietnam. Already in 2001, financial constraints had forced Russia to announce that it would relinquish in 2004 its lease of the Cam Ranh Bay naval base — the most visible symbol of Moscow’s former strategic presence in the region. Russia–Vietnam co-operation beyond energy and petroleum remained slow and results of industrial co-operation were at best modest even though bilateral trade increased by over 22 per cent in 2002 over the previous year to US$700 million. This compared poorly to projections of two-way trade between Vietnam and China, expected to reach US$5 billion by 2005.9 By year’s end Russia had disengaged from an important joint venture to build Vietnam’s first oil refinery.10 Its economic influence paled in comparison with the growing importance of China to the emerging economies of mainland Southeast Asia including Myanmar, which remains ostracized by the United States. On the region’s western flank, India’s strategic footprint is understandably most pronounced in South Asia and on the littoral states of the Indian Ocean including Indonesia, Myanmar, Thailand, and Malaysia. However, India’s membership in the ARF gives India a strategic “voice” in Southeast Asia and indeed, the wider Asia-Pacific. In the post-9/11 era India moved much closer towards security co-operation with the United States on the back of the anti-terrorism campaign while at the same time demonstrating a capacity to project naval power beyond the Indian Ocean to the outer limits of the South China Sea (which bears the clear “strategic footprint” of China) and well within the strategic environment of ASEAN. In April, India began deploying its navy to escort commercial shipping carrying “high value cargo” (fuel, ammunition, food, and other supplies) through the Straits of Malacca, to U.S. forces operating in the Arabian Sea and Persian Gulf.11 The following month it conducted for the first time in thirty-nine years joint exercises with the United States involving Indian paratroopers and Special Forces from the U.S. Pacific Command. However, India’s value to ASEAN in terms of broader security building with the region should also be seen in terms of how successfully it manages stable relations with China, which is perceived as a competitor, and Pakistan, which is regarded as a source of threat.

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In the geopolitical and geo-economic realms, regional states also saw India as a useful emerging option to diversify their external economic linkages and provide some “balance” to the growing economic weight of China. India in fact was admitted as a dialogue partner of ASEAN slightly ahead of China and Russia. While India–ASEAN trade grew by 30 per cent from US$7.6 billion in 1999 to nearly US$10 billion in 2001, the region as a whole accounts for about just 12 per cent of India’s foreign trade. The future however seems more promising.12 The U.S.-led war against terrorism could be said to serve overlapping but not congruent major power security interests. Undoubtedly stable relations among them did not necessarily mean the absence of underlying competitive dynamics. However, these were not necessarily destructive. Considering how overt great power rivalries and contestations of the Cold War had fuelled regional instability by their conjunction with intra-regional conflicts, the stable climate of major power relations which continued through 2002 was an opportune development for the region. Regional Security Concerns Stable major power relations in 2002 spared one layer of Southeast Asia’s security environment from turbulence. However, the year also witnessed clearer signs of conjuncture between global destabilization generated by a non-state, transnational terrorist movement (the Al-Qaeda) and local insecurity stemming from extremist Islamic movements. While the threat of terrorism loomed over security discourses in Southeast Asia after 9/11, the Al-Qaeda’s links with the region predated that defining moment by several years. Militant Muslim operatives in the region have been receiving training in Afghanistan and the southern Philippines. Southeast Asia too has a long history of encounters with terrorism — from militant communist movements to ethnic rebellions and Muslim separatists in southern Thailand and the southern Philippines. The end of the Soeharto regime opened the lid to a democratizing process, which allowed the hitherto repressed political Islam to flourish. However, the decompression of the political process also led to more political disorder at Indonesia’s centre and ethno-religious and/or separatist violence in the peripher y — East Timor, Maluku, Central Sulawesi, and Aceh. In the Philippines, a surge of Abu Sayyaf terrorist activities was also registered in the two years preceding 9/11, at a time of leadership drift and political transition. However, globalization of terrorism and the extended reach of the AlQaeda network — likened to “a franchising agency that functions through religious internationalism and stateless networks”13 — reminded the region of the vulnerability to penetration where local conditions and resentments fuelled by economic grievances, corruption, and repression invited exploitation. Threats to American interests everywhere also threatened the locations of such interests. Furthermore international terrorism sharpened attention on a broad spectrum of related transnational, non-conventional security threats, such as money

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laundering, arms and drug trafficking, piracy, illegal movement of people across borders, and disruption of commercial shipping and maritime trade — issues that ASEAN was increasingly impelled to address as part of a comprehensive war against terrorism albiet with varying results. In December 2001 Singapore disclosed a terrorist plot against American and Western targets on the island. The plot involved local members of the Jemaah Islamiah (JI), meaning “Islamic community” — a network of operatives straddling Malaysia, Singapore, and Indonesia and with links to the Al-Qaeda which was said to have connections also with the Abu Sayyaf and the Moro Islamic Liberation Front (MILF) in the Philippines, and what the Malaysian government has labelled as the Kumpulan Militan Malaysia (KMM).14 Following a second round of arrests of JI members in Singapore in August 2002, the Singapore Government affirmed that the JI had not only targeted foreign interests in Singapore but also local assets and installations. It was claimed that among the JI’s aims was the establishment of a pan-Islamic caliphate in the region linking Malaysia, Indonesia, Brunei, southern Thailand, and southern Philippines. Their agenda allegedly included actions (such as sabotaging the water supply to Singapore) meant to sow discord between the Malaysian and Singapore governments. The JI’s putative leader was an Indonesian Muslim cleric Abu Bakar Bashir, who operated in Malaysia as a religious teacher in the 1980s and wanted by the Malaysian police on suspicion of involvement with terrorists. Abu Bakar, by then back in his hometown in Solo, consistently denied links with Osama bin Laden (who he described as a “true Islamic warrior”) and the Al-Qaeda although he praised Osama’s fight against the United States and its allies.15 Initially Indonesia was in denial mode and dismissed external warnings. There was public resentment at pressures from neighbouring governments16 and the United States to take action against Muslim extremists and clerics like Abu Bakar. Hard evidence of their complicity was demanded. Irresolute government response has been attributed to weak political leadership, weak security apparatus, absence of anti-terrorist legislation, to the transformed psyche of the Indonesian public and leaders after 9/11, which added to distrust of Western powers.17 Furthermore President Megawati Sukarnoputri needed to tread cautiously to avoid weakening support of the Muslim parties in her coalition government. Vice-President Hamzah Haz who headed the largest Islamic political party even suggested after Megawati’s visit to the United States shortly after 9/11 that the attacks were a response to America’s sins. In May 2002 he also visited Jafar Umar Thalib, the detained leader of the Laskar Jihad, which was involved in sectarian violence against Christians in Maluku. It can be surmised that with direct presidential elections pending in 2004, Megawati could even less afford to ignore sentiments and political pressures from the “Muslim street”. The Bali bombings whose perpetrators were subsequently linked to the JI, and the resultant outrage made inaction untenable. That incident and a spate

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of terrorist attacks in the southern Philippines in the same month also generated a heightened sense of regional vulnerability and exposure. The Bali bombings effected a change in public posture on the part of Indonesian officials. Both Defence Minister Matori Abdul Djalil and Foreign Minister Hassan Wirayuda soon publicly conceded to the terrorist threat, and Hamzah Haz himself was obliged to declaim that Indonesia had to go on the offensive against terrorism. Indonesia joined Singapore, Malaysia, the Philippines, and other countries in calling for the JI’s inclusion in the U.N. list of terrorist groups and moved towards the detention of Abu Bakar. Following Bali, the Indonesian President speedily issued two anti-terrorism decrees. Unlike Indonesia, Malaysia displayed more firmness in dealing with the terrorist threat. Indeed Prime Minister Datuk Seri Dr Mahathir Mohamad seeking to be even-handed in dealing with terrorism, was the first Muslim leader to describe Palestinian suicide bombers, among others, as terrorists. In early January 2002 shortly after the Singapore arrests of JI members, he declared support for Singapore’s action18 and announced a second round of arrests of KMM members, promising to hunt down all militant activists and extremist elements in the country. Both Malaysia and Singapore have similar tough internal security laws (inherited from the British colonial government during the period of communist insurgency) that provided for detention without trial. There was also a long tradition of effective co-operation between their respective internal security agencies that has endured the tribulations in their bilateral relations. In some respects 9/11 gave Mahathir some opportunity to undercut the Parti Islam SeMalaysia (PAS), which has been making inroads to the Muslim electorate at the expense of his political party, United Malays National Organization (UMNO), anchor of the ruling multi-racial Barisan Nasional coalition. Non-Malay opposition parties that had previously reached out towards partnership with PAS were also put off by its Islamic stridency and call for jihad against the United States for its actions in Afghanistan. The Mahathir government also sought to link PAS to the KMM and JI. The government won by larger than expected margins in two byelections in Mahathir’s home state of Kedah in July 2002 although the results showed that PAS still had sizeable support among the Malay electorate. Such consideration weighed heavily in an UMNO which in June was rocked by Mahathir’s decision to step down from his government and party positions — a decision which he was persuaded subsequently to delay by a year to provide for a more orderly leadership transition. Nevertheless in the post-9/11 political context, Mahathir, in the eyes of his critics, has been able to move against the political opposition with fewer constraints. However, the intensified contestation within political Islam in Malaysia also meant that Mahathir could not ignore the sentiments of the “Muslim street” on Middle East issues and with respect to the U.S. role in Afghanistan and Iraq.

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Security Relations with the United States For most of the year the issue of the war on terror hung heavily over America’s relations with the region. However, regional states differed not only in their conventional power relations with the United States, they also reflected differences in their handling of Islamic militancy which may manifest itself in political and social opposition though not necessarily terrorism — a distinction which was not always fully appreciated in Bush’s “with us or against us” rhetoric.19 Those (such as Indonesia, Brunei, and Malaysia) with sizeable Muslim constituencies also sought to balance their condemnations of and response to terrorism in all its forms, with circumspection in their support for any Americanled war against the Al-Qaeda and, over the horizon, Iraq — lest they came across to their domestic Muslim publics as being embroiled in a “crusade” against the Islamic world. Even those such as Singapore, the Philippines, and Thailand, which have more evident defence ties with the United States were not unmindful of possible Muslim–non-Muslim fault lines within their respective societies and the strains that could be exerted on these fault lines by a prolonged war in Iraq. America’s determination to rely primarily on military means to fight terrorism rather than address the conditions that nurture it also caused unease. Nevertheless the sense of imminent, inter-penetrating threat brought on by the Bali bombings created new urgency among these regional states to work closer together with the United States and, even up to a point, Australia (with its long-held security interest in the region to its north) despite souring atmospherics over Prime Minister John Howard’s overly effusive analogy of “deputy sheriff” to characterize Australia’s special relationship with America and his subsequent talk of pre-emptive strikes abroad if there were no alternative means of saving Australia from terrorist attacks.20 Since 9/11 the Bush Administration had pressed Jakarta to take tougher measures against Muslim militants. After Bali, the U.S. Ambassador to Indonesia noted a more serious Indonesian effort to deal with the terrorists who, he stressed represented “only a tiny fraction” that might be linked to the AlQaeda.21 However, there was no joint investigation with the United States into the Al-Qaeda’s links in Indonesia, given local anti-American feelings. Unlike in the Philippines, the American approach in Indonesia emphasized lawenforcement efforts rather than military action. In taking measures against the extremist groups Megawati, for her part, has been cautious not to alienate the Muslim ground or be seen as acting on the behest of the United States and its allies. Malaysia’s tough stance against terrorism won praise from the United States despite Mahathir’s objections to the war in Afghanistan and rhetoric against American unilateralism and role in the Middle East. Economic fundamentals also pointed to the importance of the United States as its biggest foreign investor and trading partner. Reflecting pragmatism, Malaysia agreed to host an anti-terrorism centre (open to all ASEAN members) first broached by

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President Bush on the sidelines of the 2001 Asia-Pacific Economic Co-operation (APEC) summit. It dismissed suggestions that the centre would involve the deployment of U.S. troops in Malaysia — U.S. involvement would be limited to provision of expertise, training, and equipment. In May, Defence Minister Datuk Seri Najib Tun Razak disclosed the extent of Malaysia’s security links with the United States: in the past two years the U.S. navy made more than seventy-five port calls in Malaysia; U.S. Navy Seals conducted training in Malaysia twice a year; the U.S. army held field exercises with its Malaysian counterpart and Malaysia extended jungle warfare training facilities to the United States.22 Mahathir’s Washington visit later that month indicated that despite differences in outlook, sufficient common ground existed between the two countries.23 In the centre of a predominantly Muslim neighbourhood Singapore has been acutely conscious of ethno-religious turbulence in the region and any likely impact on its own multi-racial society, which includes a small but by no means inconsequential Malay-Muslim component. The island-state’s economic survival depends on being plugged into and staying open in an increasingly globalized world. Yet that very porosity also enhances its vulnerability to transnational security threats of the kind posed by the JI. In both traditional balance-of-power calculus (which points to the need to keep the United States strategically engaged in the region) and in the fight against international terrorism, it has placed itself alongside the United States, which since 1990 has been granted access to vital air and naval facilities on the strategically located island. Such facilities have been drawn upon in America’s military campaigns in the Gulf War, in Afghanistan, and most likely again in an impending war against Saddam Hussein. Although the United States wanted more regional navies to escort commercial shipping through regional waters, Singapore, claiming it had a modest navy, contributed by patrolling the Singapore Straits.24 It granted the U.S. Customs permission to station its inspectors at its major port to screen U.S.-bound cargo. In rendering assistance to the United States, Singapore was well aware of attendant risks to itself and how it might come across as a client state of America. Prime Minister Goh Chok Tong emphasized that Singapore co-operated with the United States on its own terms and as a friend whose interests coincided.25 The critical importance of the United States to Singapore in other areas (economic security) was well underscored by an impending FTA with the United States that would make the republic the first Asian country to have such a trading arrangement with Washington. The Philippines had sought to strengthen military ties with the United States since bilateral co-operation was resumed in 1999 after a ten-year hiatus. President Gloria Arroyo was one of the first to pledge support for the American anti-terror campaign and the only regional leader to invite U.S. ground forces to assist the anti-terrorism war. During the Afghanistan War, Manila granted U.S. warplanes landing, refuelling, and over-flight rights. Following 9/11 the United States stepped up training and satellite reconnaissance support in antiterrorist operations against the Abu Sayyaf — a band of Muslim radicals who

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gained notoriety for kidnapping local residents and foreigners, including Americans, and which both Manila and Washington claimed had links with the Al-Qaeda. In 2002 Washington pledged to the Philippines US$100 million in development aid and US$55 million to counter terrorism. The beginning of the year saw the deployment of more than 600 U.S. troops including 160 Special Forces personnel in a six-month joint training exercise codenamed “Balikatan” in an area where the Abu Sayyaf was known to operate. In April the Philippines approved additional deployment of U.S. troops to train, exercise with, and assist local forces hunting the Abu Sayyaf. When the exercises ended in July several hundred U.S. troops remained in the Philippines. With respect to the future disposition of American forces — issues that beckon include the constitutional and legal framework for and possible combat roles of these forces — issues that can be controversial with left-wing and nationalist groups in the Philippines. The Abu Sayyaf was not the only militant group that posed security threats to the Philippine Government. The much larger MILF force is a more formidable challenge. However, the Philippine Government was reluctant to blacklist the MILF (despite its being reportedly linked to the Abu Sayyaf and the Al-Qaeda) so as not to jeopardize ongoing though tenuous peace negotiations with the Front following a ceasefire agreement in September 2001. On the other hand, another insurgent group, the Communist Party of the Philippines (CPP), which had pursued a long-running Maoist rebellion through its military arm, the New People’s Army, was blacklisted as a terrorist organization by the United States. In August it suspended peace talks with the Philippine Government and vowed to resume activities to disrupt the Philippine economy. Thailand’s initial hesitancy in declaring support for the U.S. war against terrorism belies its image as a long-time ally of the United States and may have reflected domestic aversion towards the provision of base facilities to the United States as well as concern with the sentiments of the Muslim minorities in the south where Muslim separatists continue to operate. A government attempt in November to deploy 100,000 troops in southern Thailand triggered a public furore.26 Thailand chose to publicly spotlight intelligence exchange with the United States in the war on terrorism although it also gave U.S. aircraft the right of transit to the Gulf during the Afghan campaign. Anti-terrorism training was incorporated into the annual large-scale Cobra Gold combined military exercises that Thailand conducted with the United States and Singapore in May 2002.27 After Bali, Thailand appeared to be in some denial mode with respect to the threat of terrorist attacks on popular tourist spots despite reports that a group of Al-Qaeda operatives had met in Thailand to plan attacks on soft targets in the region months before the Bali bombings.28 It was not till December 2002 that Thai officials began to acknowledge that a senior Al-Qaeda pointman had previously passed through the country and narrowly avoided arrest. There

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is little hard evidence linking the Al-Qaeda to the Pattani United Liberation Organization (PULO), a separatist movement operating in the predominantly Muslim southern Thai provinces. PULO is not considered an “Islamist movement” although it has received support from Islamist movements on the Malaysian side of the border.29 Shortly after the United States concluded an anti-terrorism pact with ASEAN in August, Myanmar, an ASEAN member, announced that it had broken up a militant separatist group of Rohingya minorities (the Arakan Rohingya National Organization), which had received training in Afghanistan and the Middle East.30 It has been said that Yangon’s action was intended to win U.S. friendship at a time when its bilateral relations with Washington remained largely frozen on account of its poor human rights record and lack of democratic change. Faint Shadow of Human Rights Whatever might be said about human rights being edged aside by the war on terrorism, they had not become altogether irrelevant to U.S. relations with the region given the strength of Congressional feelings and pressures from human rights advocacy groups. In the case of Myanmar, Washington had not been persuaded that the release of Aung San Suu Kyi from house arrest in May 2002 after fifteen months of confinement, her freedom to travel the country to meet political supporters, the reopening of offices of her political party, the release of political prisoners, and political dialogues between Aung San Suu Kyi and the ruling junta amounted to real or meaningful transition to democracy. Myanmar has not been able to shake off its pariah image in the eyes of the West. Human rights issues also clouded Washington’s relations with the Indonesian military, which had been tarnished by serious human rights violations in East Timor during the Soeharto regime. The United States was hesitant to resume direct contacts with the Indonesian army and the International Military Education and Training (IMET) programme with Indonesia remained suspended. However, Washington gradually renewed support to the Indonesian navy while funding counter-terrorism training for the police.31 In August, during a visit to Jakarta, Colin Powell pledged more than US$50 million to help Indonesian security forces fight terrorism. Of this amount, US$31 million would go towards providing police training over the next two years and US$16 million for the establishment of a police counterterrorism unit.32 Even with Malaysia, residual human rights issues intruded into relations with Washington. Former U.S. Vice-President Al Gore had riled Mahathir when he made favourable references to the cause of deposed Anwar Ibrahim, Mahathir’s former deputy, at a function of the 1998 APEC summit in Kuala Lumpur. During Colin Powell’s visit to Kuala Lumpur in late July 2002 he signalled that Anwar, since convicted and jailed for corruption and sex offences was not forgotten — the United States saw Anwar as a political prisoner.

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American officials including James Kelly, Assistant Secretary of State for East Asian and Pacific Affairs met with Anwar’s wife at the U.S. Ambassador’s residence. Malaysia did not feel comfortable with the U.S. promotion of Anwar’s cause even while seeking its help to combat terrorism. Regional Co-operation at Countering Terrorism The anti-terror campaign was a major point of American security engagement with the region. Several regional governments received Washington’s assistance in disrupting JI activities. The United States had interest in being involved with anti-terrorism initiatives agreed to by the ASEAN Summit of November 2001. In May 2002 the United States signed a joint anti-terrorism declaration with Malaysia that provided a framework for co-operation in the prevention and disruption of and fight against international terrorism — co-operation in which information and intelligence exchange were crucial. According to the Malaysian Foreign Minister this joint declaration provided the basis for the subsequent U.S.–ASEAN Joint Declaration for Co-operation to Combat International Terrorism signed by the ASEAN Foreign Ministers and Colin Powell at Bandar Seri Begawan in late July.33 Co-operation included intelligence exchange, the blocking of terrorist funds, and tightening of border controls. However, Powell, mindful of some regional sensitivities especially in Indonesia and Vietnam, reassured that the declaration was not a prelude to increased American military presence in the region. At the same venue members of the ARF (meeting back-to-back with the ASEAN meeting with dialogue partners) also agreed to block terrorist financing. Closely following the signing of the ASEAN–U.S. declaration, China not to be left out, proposed a similar arrangement for the “ASEAN+3” gathering which informally links ASEAN to China, Japan, and Korea.34 Regional networks of terror could not be unravelled unless regional governments co-operated meaningfully. However, such co-operation could not ignore diversities in regional conditions, political realities, and outlooks. The ASEAN summit of the previous November in Bandar Seri Begawan recognized terrorism as a direct challenge and committed the regional association to “countering, preventing and suppressing all terrorist acts in accordance with the (U.N. Charter)… especially taking into account the importance of all relevant U.N. resolutions”. While the declaration unequivocally condemned the 9/11 attacks, it omitted mentioning the war in Afghanistan — an indication of differences in national positions. It noted the framework already established and measures taken to fight transnational crime. Additional measures and capacity-building to combat terrorism were announced but significantly the summit recognized the need to take account of “specific circumstances in the region and in each member country” in considering joint action.35 The “specific circumstances of the region” also complicated attempts to extend the trilateral anti-terrorism agreement signed by Malaysia, Indonesia, and the Philippines in Kuala Lumpur in May 2002 to other ASEAN partners

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although Thailand and Cambodia indicated interest in joining. Its very broad coverage beyond targeting potential terrorist threats and the politically and legally contentious aspects of the other areas covered — such as, informationsharing on money laundering, piracy, hijacking, intrusions, illegal entry, drug trafficking, theft of marine resources, marine pollution, and illicit arms trade — created reticence on the part of other ASEAN members. Absence of a region-wide extradition treaty, lack of standard definitions for crimes, and difficulty in harmonizing national laws were other impediments. ASEAN members also had differences over Malaysia’s attempts to seek a definition of terrorism. In May a special meeting of ASEAN Home Affairs and Interior Ministers failed to arrive at a common definition and instead reiterated the need to respect and uphold “the sovereignty, territorial integrity and domestic laws of each ASEAN Member Country” in the fight against terrorism.36 IntraASEAN debate reflected controversies in other international forums including the United Nations that centred on the problem of distinguishing terrorists from freedom fighters. However, the absence of a clear definition did not preclude attempts at co-operating on measures to address specific acts of terrorism including bilateral co-operation between law enforcement agencies. Expectations of War in Iraq Towards the year’s end the prospect of war over Iraq began to cast a pall of pessimism over Southeast Asia. Concerns focussed on the possible repercussions on those plural societies in the region, which also contain substantial Islamic constituencies. Increasingly the United States appeared intent to disarm Iraq and forcibly effect a regime change there with or without broad support from the international community. The refrain “regime change” which carried strong overtones of military intervention jarred in many ASEAN ears long conditioned by exhortations of the “ASEAN way” of non-interference in the domestic affairs of states. In this, Mahathir was most voluble in his criticism of the U.S. approach including its unilateralist tendency. Mahathir had earlier criticized the U.S. campaign in Afghanistan (an event which also triggered public protests in Indonesia, Thailand, and Malaysia) saying that war was not the way to beat terrorism. The imminence of war in Iraq threatened to reopen the political gap between Washington and Kuala Lumpur, which had narrowed following Mahathir’s visit to the United States in May. It can be surmised that a new ASEAN member, such as Vietnam with its past experience of American military intervention, would have reservations about America’s military stridency. During the war in Afghanistan, Vietnam’s army newspaper Quan Doi Nhan Dan had called on the United States to stop its military actions and commented that the fight against terrorism “requires global co-operation. However, one cannot fight terror with war, particularly launching a war against an independent and sovereign country.”37 An America-led pre-emptive war in Iraq without U.N. Security Council authorization, and especially if it became protracted, could also heighten

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tensions within Southeast Asia where radical groups were portraying the war against terrorism as a war against Islam. Even in the Philippines, the most openly identifiable regional ally of the United States, there were some early signs of unease over the American rush to war with Iraq. In September the Philippine Foreign Secretary Blas Ople said that his country would extend to U.S. aircraft and naval vessels over-flight and docking rights as well as landing and refuelling facilities if requested. However, he added the proviso that the United States would have to convince the international community that the war was connected with the anti-terrorism campaign.38 Later President Arroyo’s office sought to qualify the Philippine support by saying that such assistance in any war with Iraq would have to be dependent on a U.N. resolution for action.39 These early nuances in statements stemming from America’s staunch regional ally echoed regional dilemmas as well. Differences in ASEAN member’s outlooks would make it difficult to achieve a consensual statement of support for the United States just as there was no regional consensual statement on the Afghanistan War, despite wide support for a global partnership in dealing with the threat of international terrorism. In effect a distinction was being drawn between war against terrorism and war against Saddam Hussein, however much the United States sought to link the two. Sensing these fault-lines Iraqi diplomats in the region reportedly tried to lobby regional governments during August with special attention on Thailand and the Philippines to pre-empt their support of the United States. The Iraqis were said to be confident of warmer responses from Muslim-majority Indonesia, Malaysia, and Brunei and perhaps Vietnam and Laos, which generally opposed foreign intervention.40 American stridency over Iraq also stood in contrast to continuing restraint over North Korea even after the latter’s admission to having a nuclear weapons programme. Singapore echoed regional concern that a lengthy war over Iraq leading to excessive loss of Muslim lives could upset the Islamic world — a situation that could be exploited by terrorists to mount attacks on American interests not only within the United States but also worldwide including Southeast Asia. Such an eventuality would heighten the sense of shared vulnerability across Southeast Asia. Beyond Terrorism Although the war on terrorism was a looming regional concern it was not the only issue that animated the region. In recent years ASEAN has been courted by offers of trade and new economic partnership agreements by China, Japan, the United States, Australia, and New Zealand, South Korea, and even India. Such overtures towards ASEAN came at a time when multilateral free trade negotiations through the WTO were making painfully slow progress and when regional states themselves were beginning to see the sense of bilateral free trade pacts between them and the developed nations. Within the region Singapore led the way by signing FTAs with New Zealand, Japan, the European Free Trade Association, Australia, and in 2002 concluded FTA negotiations

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with the United States. Other countries notably Thailand, the Philippines and Malaysia (despite Kuala Lumpur’s earlier apprehensions that bilateral FTAs undermined the ASEAN free trade scheme) also proceeded with FTA proposals of their own with Japan, the United States and other countries. Bilateral agreements could conceivably be stepping-stones to wider agreements between the region and external partners whose overtures indicated that latent economic opportunities in the ASEAN region were not ignored. At the “ASEAN+3” summit meeting in Phnom Penh in November 2002 much attention was drawn to Chinese Premier Zhu Rongji who signed the outlines of a free trade pact with ASEAN, set to begin by 2010. Although the pact has still to be fleshed out and sceptics have questioned the tangible benefits considering that China’s and ASEAN’s economies are largely competitive rather than complementary, the speed with which the outline was signed, coming a year after ASEAN agreed to Zhu’s proposal at the Brunei summit, caught the limelight. Zhu’s Brunei proposal contrasted with Koizumi’s subsequent idea (spelt out at a keynote speech in Singapore in January 2002) of a comprehensive economic partnership with ASEAN. Koizumi’s vision statement had appeared reactive, vague, and lacking in a timetable. Nikkei Weekly, a leading Japanese economic magazine, reporting from Phnom Penh on Japanese “shock” at China’s free trade proposal, commented, “Japan wants to ensure its economic leadership while feeling increasingly threatened by China, which is aggressively expanding its economic power in the region”.41 Japan’s reluctance to open up its agricultural sector, due to vested political interests could be one reason for the slow march towards a new economic partnership with ASEAN. In a separate meeting with ASEAN leaders in Phnom Penh, Koizumi signed the Integrated Economic Partnership Initiative that would allow Tokyo to pursue different forms of co-operation with different ASEAN members, from economic assistance to FTAs.42 Such an approach while flexible created the impression that the less developed ASEAN states might be sidelined, and that somehow Japan was lagging behind China in economic diplomacy. China’s overture of long-term partnership with ASEAN was as much an exercise in economic confidence-building addressing the region’s sense of economic threat. China’s economic rise (with annual growth at 7 per cent) and competitiveness following its accession to the WTO stood out against the background of economic slowdown in Japan and the United States, traditional engines of ASEAN’s economic growth. For Southeast Asia, China’s presumed capacity to attract FDI away from the region was another challenge. Sluggish investment flows to Southeast Asia compared unfavourably to FDI flows to China approximating between US$40 billion to US$50 billion annually. An ASEAN–China FTA when it materializes would be the largest in the world with a combined population of 1.7 billion, a GDP of almost US$2 trillion and two-way trade worth US$1.2 trillion. China’s security confidence-building with ASEAN was advanced by the signing of the Declaration on the Conduct of

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Parties in the South China Sea pledging self-restraint. Though not a binding code of conduct the declaration symbolized a political desire to avoid activities that could escalate tensions in areas such as the Spratlys where sovereignty was disputed. China and ASEAN agreed that such disputes would be resolved peacefully. The Phnom Penh gathering also saw the appearance of the Indian Prime Minister for the first time at ASEAN’s post-summit meeting in a gesture, which underlined the growing significance of India to the region. Not to be outdone by the others, Prime Minister Atal Bihari Vajpayee also offered to negotiate a FTA with ASEAN. These developments at Phnom Penh could well suggest that the major Asian powers might have their own geo-economic balance-of-influence considerations in mind by courting ASEAN. However, it also had the effect of putting ASEAN back in a positive light on their radarscope. ASEAN Integration The prospect of entering into FTAs with the major trading powers meant that ASEAN also needed to hasten its own integration process and enhance its competitiveness. An ASEAN-commissioned study on the region’s competitiveness released at the time of the Phnom Penh summit, found that the region faced a serious competitiveness challenge despite its vast natural resources, human resources potential, and a total market size comparable to coastal China. The report by McKinsey & Company warned that investors were being deterred by problems created by the limited integration of ASEAN. Few saw the region as a single market. The implications for ASEAN were clear: enhance competitiveness and market attractiveness through greater economic integration or risk being sidelined by the new economic forces unfolding across East Asia. The need to deepen economic integration led Singapore’s Prime Minister Goh Chok Tong to spell out a vision at the 2002 ASEAN summit, of transforming the regional association into an ASEAN Economic Community (AEC) by 2020 — by which time ASEAN would be a single market with zero tariffs and free movement of goods and services. This would take the region beyond the present ASEAN Free Trade Area (AFTA) scheme, which commits ASEAN members to a timetable of tariffreductions over a range of goods but allowing members to exempt goods of their choice from the free trade list. Regional integration also calls for a closing of the gap between the developed and developing states of ASEAN. For Myanmar, Laos, Cambodia, and Vietnam — the less developed new members of the association — their development priorities may be quite different and distinct from the others. The Initiative for ASEAN Integration (IAI) Work Plan adopted by the ASEAN leaders in 2000 was intended to address the needs of the new members to help them integrate and keep up with the more developed members. Among themselves Vietnam, Cambodia, and Laos have also been meeting

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separately to build a “triangle of development”. In January 2002 Vietnam, Cambodia, and Laos held their second informal summit meeting in Ho Chi Minh City to speed up socio-economic development in the border area between the three countries. The three Prime Ministers also considered concrete measures to ensure security and social order in the border areas to prevent acts of terrorism in each country and to take measures to combat transnational crime and drug trafficking. It is noteworthy that Vietnam took the lead in drawing the master plan for the “Development Triangle” and the “traditional friendship”, and solidarity between the three peoples were invoked as an important factor for the stability and development of each country although they also referred to stepping up their co-operation within the ASEAN framework.43 While integration “purists” may interpret the trilateral mini-summit phenomenon as “regressionary”, it could also mark the acknowledgement of separate and exclusive interests at the sub-regional level. Conclusion The war on terrorism cast a long shadow over the agenda of co-operation between regional states and between them and the major powers, especially the United States, during the course of the year. The challenge of terrorism also brought about a more co-operative climate in the relations among the external powers. The consequent stability in major power relations made for a calmer external security environment for ASEAN. However, the Bali bombings highlighted a conjuncture between destabilization generated by a global network of terror and local instability. But a coherent regional response was not easy to achieve given the complexity of local political interests posed by political Islam. Existing regional fault-lines and divergent perspectives towards an assertive United States in a post-9/11 world were exacerbated by the approach to war in Iraq — increasingly likely to be an American-led campaign without a mandate from the United Nations. Regional efforts to co-operate in the war against international terrorism were also complicated by the diversity of local political conditions and interests. While the war on terrorism could well have distracted regional efforts at recovering economic growth and development, external economic interests helped to bolster ASEAN’s image as a region still being courted with offers of free trade pacts. Such overtures meant, however, that ASEAN itself would need to get its act together to enhance integration and competitiveness. In the final analysis, sustained economic recovery and economic growth will feed back towards enhancing the kind of resilience needed to meet softsecurity challenges in a more comprehensive way even as more concerted regional efforts to counter terrorism are worked at. It remains whether the region can demonstrate that it has the political will to grasp these opportunities.

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NOTES 1. Straits Times, 10 September 2002. As it turned out, for the whole of 2002 Singapore’s economy grew by 2.2 per cent — less than a third of the average annual rate between 1985 and 2001. Singapore’s unemployment rate in 2002 hit a sixteen-year high. One out of every twenty persons in the labour force became unemployed. 2. Pei Minxin, “ Symbolic Summit Provides Several Surprises”, Straits Times, 28 October 2002, p. A3. 3. CNN.com, “Japanese Warship heads for Indian Ocean”, 16 December 2002, . 4. Straits Times, 6 December 2002. 5. In the following month it was the turn of the Japanese public to feel anger over the “intrusion” of Chinese police into the Japanese consulate in Shenyang to arrest five North Korean asylum seekers. 6. Ted Galen Carpenter, “Japan takes a modest step toward global security”, 8 January 2003, . See also Dane Eaton, “Southeast Asia warms to Japanese military role”, Bangkok Post, 11 January 2002, p. 10. 7. “China, Russia issue joint statement”, Xinhua News Agency, 3 December 2002, . 8. The Kremlin conceded that trade with ASEAN remained low. According to Russian official statistics, bilateral trade with ASEAN in 2001 reached US$203.5 million, Asia Times, 3 October 2002, . 9. Vietnamese Prime Minister Phan Van Khai made the projections in an interview published in the Far Eastern Economic Review, 20 March 2002, p. 17. 10. Vietnam News, 26 December 2002. 11. Straits Tines, 8 August 2002. 12. Straits Times, 3 October 2002. 13. Christopher Coker, Globalisation and Insecurity in the Twenty-first Century: NATO and the Management of Risk, Adelphi Paper 345, Oxford University Press for IISS, 2002, p. 39. 14. For an extensive detailing of the Al-Qaeda’s links in Southeast Asia, see Rohan Gunaratna, Inside Al-Qaeda: Global Network of Terror (London: Hurst, 2002), pp. 174–204. 15. International Herald Tribune, 23 January 2002. 16. In February the Indonesian public, legislators, and officials reacted strongly to Singapore Senior Minister’s remarks that terrorist leaders were at large in Indonesia. 17. See Irman G. Lanti, “Nationalism behind Jakarta’s passivity towards militants”, Straits Times, 25 January 2002, p. 32. 18. President Megawati herself made no official comment but the Nadhlatul Ulama and the Muhammadiyah as well as the Indonesian Ulema Council criticized the detentions and said the Indonesian authorities should not be swayed by these developments. (Straits Times, 8 January 2002.) 19. See Barry Wain, “Unfriendly Fire”, Far Eastern Economic Review, 12 September 2002, pp. 15–17, 20, 22. 20. In February Indonesia signed an anti-terrorism agreement with Australia. It was essentially an accord, which formalized an ongoing co-operation in intelligence sharing. 21. Straits Times, 9 October 2002. 22. Straits Times, 3 May 2002. 23. See Munir Majid, “Common ground in Malaysia–US relations”, New Straits Times, 19 May 2002, p. 11, and Karim Raslan, “US sees Malaysia in new light”, Sunday Star, 19 May 2002, p. 34.

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Southeast Asia in 2002: From Bali to Iraq — Co-operating for Security 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43.

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Straits Times, 9 August 2002. Straits Times, 28 November 2002. Straits Times, 7 November 2002. “Enhancing Cooperation in Cobra Gold”, Asia-Pacific Defense Forum, Winter 2002– 03, p. 6. Raymond Bonner, “Qaeda meeting in Thailand planned attacks on tourists”, International Herald Tribune, 9–10 November 2002. See also Shawn W. Crispin, “In Denial”, Far Eastern Economic Review, 14 November 2002, p. 24. Rohan Gunaratna, Inside Al-Qaeda, p. 203. Straits Times, 9 August 2002. Gunaratna noted that Rohingya Muslims from Myanmar have joined the Al-Qaeda. See his Inside Al-Qaeda, p. 204. International Herald Tribune, 7–8 September 2002. International Herald Tribune, 3–4 August 2002. “ASEAN-United States of America Joint Declaration for Co-operation to Combat International Terrorism”, Bandar Seri Begawan, 1 August 2002, . Catherine E. Dalpino, “Making the anti-terrorism pact work”, Straits Times, 13 August 2002, p. 12. “2001 ASEAN Declaration on Joint Action to Counter Terrorism”, . Joint Communique of the Special ASEAN Ministerial Meeting on Terrorism, Kuala Lumpur, 20–21 May 2002, . Straits Times, 9 October 2002. Straits Times, 10 September 2002. Straits Times, 16 September 2002. Bangkok Post, 16 September 2002. James Brooke, “Japan defers to a brash neighbor”, International Herald Tribune, 7–8 December 2002, p. 1. Yang Razali Kassim, “Is Japan being slow or street-smart about ASEAN?”, Business Times, 16 November 2002, pp. 1, 2. Second Meeting of the Prime Ministers of Vietnam, Cambodia, and Laos on the Building of Development Triangle, Ho Chi Minh City, 26 January 2002, and “Minutes of the Second Meeting of the Cambodia-Laos- Vietnam Working Group on Establishment of the Cambodia–Laos–Vietnam Development Triangle”, .

© 2003 Institute of Southeast Asian Studies, Singapore

Southeast Asian Affairs 2003, pp. 24–38

ECONOMIC OVERVIEW OF SOUTHEAST ASIA IN 2002

Tham Siew-Yean

Introduction The year 2002 started on an optimistic note as growth in the United States picked up in late 2001 and the first quarter of 2002. This gave rise to the hope that the American economy was on the way towards recovering from the turmoil of the previous year and the recovery will in turn lead to beneficial effects for Southeast Asia due to the extensive trade and investment links between the two. However, by the middle of the year, the sustainability of the recovery in the United States started to appear questionable as the seemingly strong pace of growth in the gross domestic product (GDP) in the first quarter of 2002 actually reflected an inventory rebound rather than an upturn in corporate expenditures. This seemed to be confirmed by the slowdown in the economic growth of the United States in the second quarter of 2002 and the downward revision of the first quarter growth. The growth for 2001 was also subsequently revised downwards based on data revisions. Thus while the recovery of the American economy is projected to continue, its pace is expected to be much more subdued than earlier thought, at 2.2 per cent for the year 2002 as a whole and at 2.6 per cent for 2003.1 At the same time the sluggish pace of recovery in Europe also led the International Monetary Fund to revise downwards the projected growth rate of this region for both 2002 and 2003 by 0.5 per cent lower than its April forecast.2 Concurrently Japan’s economy continues to languish as the recession in 2001 is expected to continue into 2002 although a modest rebound is forecast for the year 2003. Amid the uncertainty of the recovery in the United States, Europe, and Japan, the Bali blast in October 2002 as well as the prospect of war between the United States and Iraq only served to heighten the fragility of the recovery in the global economy and its attendant impact on the ASEAN economies. Macroeconomic Performance of ASEAN in 2002 Despite growing doubts pertaining to the strength of the recovery in the industrialized countries and the relatively weak business sentiment, the ASEAN region as a whole recovered from the series of major shocks in the year 2001, ranging from the global economic slowdown to the tragic THAM SIEW-Y EAN is a Senior Research Fellow at the Institute of Malaysian and International Studies (IKMAS), Universiti Kebangsaan Malaysia. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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Economic Overview of Southeast Asia in 2002

event of 11 September and its aftermath. Based on Table 1, it can be seen that ASEAN as a whole excluding Brunei, experienced an average recovery of 3.8 per cent in 1999 post-crisis and this grew further to 6.0 per cent in 2000. However, the average growth of the region fell to 2.0 per cent in 2001 due largely to the unfavourable external environment at that time. Recovery in 2002 is projected to average at 3.8 per cent according to the latest update from the Asian Development Bank. Nevertheless the pace of recovery is not the same in the different countries that form the ASEAN as shown in the following section. TABLE 1 Real GDP Growth in ASEAN Economies, 1999–2003 (In percentage, year-on-year) 1999 2000 2001

2002

2003

ADO 2002 Update ADO 2002 Update Average 3.8 6.0 2.0 Cambodia 6.9 7.7 6.3 Indonesia 0.9 4.8 3.5 Lao People’s Dem. Rep. 7.3 5.8 5.7 Malaysia 6.1 8.3 0.4 Myanmar* 10.9 5.5 4.8 Philippines 3.4 4.4 3.2 Singapore 6.9 10.3 –2.0 Thailand 4.4 4.6 1.8 Vietnam 4.7 6.1 5.8 Brunei* 2.6 2.8 –0.4

3.4 4.5 3 5.8 4.2 4.2 4.0 3.7 2.5 6.2 3.0

3.8 5.0 3.2 5.8 4.5 n.a 4.0 3.9 3.8 3.7 n.a

4.3 6.1 3.6 6.1 5.8 4.8 4.5 6.5 3.0 6.8 2.9

4.6 6.0 4.4 5.8 5.0 n.a 4.5 5.6 4.0 6.2 n.a

NOTES: Average does not include Brunei, n.a = not available SOURCE: (Accessed on 18 December 2002) for the data of all the countries shown except in the case of Myanmar and Brunei which was extracted from IMF (2002), p. 175.

Growth and Source of Growth in 2002 Each of the CLMV (or Cambodia, Lao People’s Democratic Republic [Lao PDR], Myanmar, and Vietnam) countries registered higher growth rates than the ASEAN-5 economies in 2001 as they are less dependent on trade in semiconductor chips as well as trade in information and communications technology (ICT) products. Hence these economies were shielded from the fallout in the global semiconductor chip market and the concurrent contraction in ICT demand in the United States in that year (Table 1). As a corollary to that, they also did not share in the rebound in economic growth that was experienced by the ASEAN-53 for the first three quarters of the year 2002 (Table 2) due in part to the recovery in global chip demand and the ICT sector as a whole.

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Tham Siew-Yean TABLE 2 Quarterly Real GDP Growth for the ASEAN-5, Q1 2001–Q3 2002 (Percentage change from the same quarter in previous year)

ASEAN-5 Indonesia Malaysia Philippines Singapore Thailand

Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2003 4.8 3.0 2.9 5.0 1.6

3.8 0.4 3.0 –0.5 1.9

3.2 –0.9 3.0 –5.4 1.8

1.6 –0.5 3.9 –6.6 2.5

2.4 1.1 3.7 –1.5 3.9

3.8 3.9 4.8 3.8 5.1

3.9 5.6* 3.8 3.9 5.8

NOTE: Data for the third quarter in Malaysia was extracted from Ariff 2002, p. 20. SOURCE: (Accessed on 26 December 2002).

TABLE 3 Growth in Manufacturing in ASEAN-5, 1998-Q3 2002 (In percentage, year-on-year) ASEAN-5

1998

1999

2000

2001

Q1 2002

Q2 2002

Q3 2002

Indonesia Malaysia Philippines Singapore Thailand

–11.4 –13.4 –1.1 –0.6 –10.8

4.0 11.7 1.6 13.6 11.9

6.1 19.1 5.6 15.3 6.0

4.3 –6.2 2.9 –11.6 1.4

4.3 –2.3 2.4 –4.5 4.2

2.7 5.6 4.8 13.3 6.8

3.0 7.3 1.3 14.8 9.0

SOURCE: (Accessed on 26 December 2002).

The rebound in economic growth in 2002 can be attributed to the recovery in manufacturing growth in the ASEAN-5, especially in the case of Malaysia, Thailand, and Singapore as manufacturing recovery strengthened consecutively from the first quarter to the third quarter of 2002 (Table 3). Growth in Indonesia’s manufacturing, which is less dependent on chip production as the other ASEAN-4 economies, has fluctuated due to labour disputes, higher wage demands, and transport and regulation issues that in turn led to some corporate downsizing.4 On the other hand, in the case of the Philippines, which is also very much dependent on electronics production and exports, a slower rate of growth in manufacturing was observed for the third quarter of 2002 after two quarters of continued growth. Given the export orientation in manufacturing production in the ASEAN-45 as part of the regional production networks of the multinational corporations (MNCs) in the electrical and electronics subsector, the merchandise exports of these economies have also rebounded in tandem with the recovery in the manufacturing sector. Therefore Table 4 shows that the negative growth rates in merchandise exports that was experienced in 2001 is expected to turn positive for all the ASEAN-4 economies. Malaysia’s recovery

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Economic Overview of Southeast Asia in 2002 TABLE 4 Growth Rate of Merchandise Exports in ASEAN-5, 1999–2003 (In percentage, year-on-year) 1999

2000

2001

ASEAN-5 Indonesia Malaysia Philippines Singapore Thailand

1.7 16.8 19.1 4.5 7.4

27.6 17.0 9.0 20.4 19.6

–12.1 –8.8 –16.2 –11.9 –7.0

2002

2003

ADO 2002

Update

ADO 2002

Update

10.5 7.0 3.0 5.0 4.0

–3.0 5.5 4.0 5.5 2.7

8.0 11.9 6.0 10.0 9.0

8.0 4.8 4.5 10.5 7.0

Source: (Accessed on 18 December 2002).

in merchandise exports took place in March 2002 while growth in the Philippines, Singapore, and Thailand’s merchandise exports recovered a month later. In the case of Indonesia, recovery in the growth of merchandise exports did not take place until June despite improvements in global demand as nonoil/gas exports in this country was negatively affected by the appreciation of the rupiah and labour issues on the production end.6 For the year as a whole, Indonesia is the only country in the ASEAN-5 that is projected to have a negative growth rate of 3.0 per cent for its merchandise exports although this decline is significantly smaller than the decline that was experienced in the previous year (Table 4). The dominance of intra-industry and intra-firm trade in the global and regional production networks of the MNCs implies that export recovery is usually accompanied by an increase in import growth as well. Thus it is not surprising to find that the growth rate of merchandise imports for the ASEAN4 is also expected to register a positive rate for the year 2002 after the negative growth rate in 2001 (Table 5). However, Indonesia is projected to have a

TABLE 5 Growth Rate of Merchandise Imports in ASEAN-5, 1999–2003 (In percentage, year-on-year) 1999

2000

2001

ASEAN-5 Indonesia Malaysia Philippines Singapore Thailand

–4.2 12.8 4.2 9.0 16.9

31.9 26.2 3.8 22.2 31.3

–13.5 –7.6 –6.2 –14.0 –2.8

2002

2003

ADO 2002

Update

ADO 2002

Update

10.0 10.0 2.5 6.0 5.0

–12.0 9.0 3.0 7.0 4.1

10.0 16.1 4.0 11.1 9.0

8.0 8.5 4.0 12.3 10.0

Source: (Accessed on 18 December 2002).

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Tham Siew-Yean

negative growth rate for its merchandise imports for the year 2002 as a whole due in part to the lower imports of capital goods and raw materials during the first quarter of the year.7 Nevertheless, the recovery in exports and manufacturing growth are not the sole factors that have contributed to the economic recovery in the ASEAN-5 in 2002. Improvements in domestic demand have also contributed to the economic turnaround that was experienced in the first three quarters of 2002 for the ASEAN-4. Of the three components in domestic demand, that is private and public consumption and domestic investment, it is private consumption that has played a key role in driving up the domestic demand in the ASEAN-4, except in the case of Singapore. Table 6 shows clearly the improvement in the growth in private consumption in the ASEAN-4 with the exception of Singapore where private consumption continued to decline in all the three quarters shown. Instead, the same table shows that it is the growth in public consumption that contributed towards the positive growth in domestic demand in the second quarter of this year for Singapore. The other contribution to the recovery in domestic demand in Singapore is the improvement in its domestic investment.

TABLE 6 Growth in Demand in the ASEAN-5, 1998–2002 (In percentage, year-on-year) ASEAN-5

1998

1999

2000

2001

Q1 2002

Growth in Private Consumption Indonesia –6.2 4.6 3.6 Malaysia –10.2 2.9 12.5 Philippines 3.5 2.6 3.5 Singapore –3.8 6.4 9.9 Thailand –11.5 4.3 4.9

5.4 2.8 3.6 0.5 3.7

6.6 3.0 3.5 –1.6 3.7

5.9 5.4 3.7 –0.6 4.0

4.9 4.0 4.0 –0.5 5.0

Growth in Public Consumption Indonesia –15.4 0.7 6.5 Malaysia –8.9 17.1 3.0 Philippines –1.9 6.7 6.1 Singapore 8.0 6.1 14.0 Thailand 3.9 3.2 2.6

8.2 17.6 0.3 6.6 1.6

6.7 13.4 –2.4 –3.2 8.3

9.5 15.5 0.6 17.0 –1.7

16.0 21.7 –0.8 n.a –3.2

–27.7 8.5 6.8 6.3 0.0

–8.0 11.9 10.4 n.a 3.8

Gross Domestic Investment Growth Rates at Constant Prices Indonesia –39.0 –23.2 –1.2 1.7 –40.0 Malaysia –43.5 –3.9 27.4 –9.9 3.1 Philippines –50.9 8.5 11.0 1.7 –4.3 Singapore –13.3 2.5 13.2 –23.4 –19.3 Thailand –16.3 –2.0 5.5 1.3 –5.6

Q2 2002

Q3 2002

SOURCE: (Accessed on 26 December 2002), except for the third quarter data for private consumption in Singapore which was extracted from the Performance of the Singapore Economy in the Third Quarter 2002 and Outlook for 2002 & 2003 , accessed on 30 December 2002.

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Economic Overview of Southeast Asia in 2002

In contrast, the fall in domestic demand in Indonesia is attributed to the contraction in domestic investment even though both private and public consumption continued to improve (Table 6). The improvement in domestic demand, in turn, is due to the fiscal stimulus measures that were used to counter the negative external shocks of 2001 together with interest rate reductions. In fact, Table 7 shows that the overall fiscal budget of the ASEAN-5 economies, except for Singapore, have been in deficit since the economic crisis in 1998. This fiscal deficit is expected to extend to 2002 based on programmed budget. TABLE 7 Overall Budget Surplus/Deficit (–) of Central Government, ASEAN, 1998–2001 (Percentage of GDP) ASEAN

1998

1999

2000

2001

Indonesia Malaysia Philippines Thailand

–1.7 –1.8 –1.8 –7.6

–2.8 –3.2 –3.6 –11.2

–1.6 –5.8 –3.8 –3.2

–2.3 –6.7 –3.8 –2.1

SOURCE: (Accessed on 18 December 2002). TABLE 8 Unemployment in the ASEAN-5, 1998–2002 (In percentage) ASEAN-5 Indonesia Malaysia Philippines Singapore Thailand

1998

1999

2000

2001

Q1 2002

Q2 2002

Q3 2002

5.5 3.2 9.6 3.2 4.4

6.4 3.4 9.6 3.5 4.2

6.1 3.1 10.1 3.1 3.6

n.a. 3.7 9.8 3.3 3.4

8.1 3.7 10.3 3.7 3.2

n.a. 3.8 13.9 5.2 2.9

8.1 n.a n.a n.a n.a

SOURCE: (Accessed on 26 December 2002).

Despite improvements in the respective economies, unemployment seems to be on the rise for the ASEAN-5 for the first two quarters of 2002 with the exception of Thailand where unemployment has fallen consecutively since the economic crisis in 1998 (Table 8). It should be noted that Indonesia’s official unemployment rate does not capture the illegal workers that were repatriated from Malaysia in 2002. Moreover, the growing unemployment reflects the lack of job creation in both Indonesia and the Philippines. The rise in unemployment indicates the fragility of the recovery in this region. Inflation on the other hand is not of serious concern in the region except for Indonesia and to a lesser extent for the Philippines. It is expected to

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Tham Siew-Yean

decrease for Thailand, Singapore, and the Philippines, while it is projected to increase in the case of Malaysia and Indonesia from 2001 to 2002. While the region’s stock markets posted gains in the first two quarters of 2002 compared with 2001, it declined in the third quarter except for Singapore which went into the decline since the second quarter (Table 9). The decline in the third quarter was due in part to stock market slide in the industrial countries, a decline in net foreign portfolio inflows to the region and domestic economic problems in some of the countries.8 With the exception of the Philippines, the region’s currencies also strengthened against the U.S. dollar, thereby reducing their export competitiveness for the first eight months of 2002 (Table 10). Malaysia held on to its peg with the U.S. dollar that was imposed since the economic crisis in 1998 but the ringgit tended to depreciate in real effective terms for the same period.9 TABLE 9 Average Stock Price Index for the ASEAN-5, 1998–2002 ASEAN-5

1998

1999

2000

2001

Q1 2002

Q2 2002

Q3 2002

Indonesia Malaysia Philippines Singapore Thailand

416.8 515.9 1,792 348.8 351.6

547.3 696.3 2,170 523.6 421.0

507.4 841.4 1,584 557.0 341.5

404.8 636.7 1,347 428.0 303.5

446.9 720.2 1,350 458.1 355.3

526.4 767.5 1,326 448.1 390.1

448.9 712.0 1,131 401.5 369.6

SOURCE: (Accessed on 18 December 2002).

TABLE 10 Nominal Exchange Rate, ASEAN-5, 2000–2002 (Percentage change; – = depreciation of local currency against the US$)

Indonesia Philippines Singapore Thailand

2000

2001

Jan–Aug 2000

–21.4 –19.5 –4.1 –12.8

–9.9 –1.3 –6.3 –1.3

10.0 –0.8 5.4 4.8

SOURCE: (Accessed on 18 December 2002).

Progress in Financial and Corporate Restructuring and Reforms10 Table 11 shows the pace of financial restructuring since the onset of the crisis in 1998. Between December 2001 and September 2002, the ratio of nonperforming loans (NPLs) has continued to decline in Indonesia, Malaysia, and Thailand, albeit at a slower pace as compared to the previous year. As of September 2002, the NPLs in the financial system stood at 10.8 per cent in

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Economic Overview of Southeast Asia in 2002 TABLE 11 NPLs in the ASEAN-5, 1998–2002 Date

Indonesia

Malaysia

Philippines

Thailand

Ratio of NPLs to Total loans of the Finance Sector December 1998 49.2 13.6 December 1999 33.0 11.0 December 2000 18.8 9.7 December 2001 12.1 11.5 September 2002 10.8 10.5

11.0 12.7 14.9 16.9 17.6*

45.0 38.9 17.9 10.5 10.1

Share of Purchased NPLs Disposed of by AMCs October 2001 6.3 85.2 October 2002 18.4 100.0**

n.a n.a

n.a 52.9

NOTES: NPLs = Non-performing Loans AMCs = Asset Management Companies n.a = not available * = June 2002 ** = September 2002 SOURCE: 1998–2001: ADB 2002c 2001–2002: (Accessed on 26 December 2002).

Indonesia, 10.5 per cent in Malaysia, and 10.1 per cent in Thailand. A reverse trend can be observed in the case of the Philippines as NPLs in the financial system increased from 11 per cent in 1998 to 17.4 per cent in September 2001. Although this subsequently improved to 16.9 per cent in December 2001, it increased again to 17.6 per cent by June 2002. As noted,11 aggregate NPLs that include NPLs transferred to the asset management companies (AMCs) are higher than the numbers shown in Table 11. The pace of asset disposal varied widely among the ASEAN economies that set up the AMCs in order to reduce NPLs in these economies. For example, Malaysia continued to maintain its leading position in this area. By the middle of 2002, Danaharta, the centralized AMC in the country, had either restructured or approved for restructuring all the assets that it acquired from banks and it is expected to turn in a profit by 2005 when it is scheduled to be dissolved. In contrast, the progress made by Indonesia’s AMC — the Indonesian Bank Restructuring Agency (IBRA) — was much slower as by August 2002, IBRA had only disposed of 17 per cent of the assets taken over from the banks. Nevertheless, IBRA completed its first major asset sale of NPLs in July 2002, worth Rp82 trillion, which was sold for Rp23 trillion and hence the pace of asset disposal may pick up in the forthcoming year. The Thai Asset Management Corporation (TAMC) in Thailand managed to dispose of 41 per cent of the NPLs that it has acquired by August 2002 within the short one year of its existence. Although the Philippine Government did not set up a centralized AMC to resolve the NPLs of the banks in the aftermath of the crisis as the banking sector was relatively unaffected, it is now

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Tham Siew-Yean

working on a new legislation — the Special Purpose Asset Vehicle Bill, in view of the increasing NPLs in the financial system. The House bill was approved in May 2002 but its counterpart bill is still waiting for approval by the Senate. It is hoped with the approval of this bill, special purpose vehicles can be created to clean up the balance sheets of the banks, thereby enabling the banks to resume lending to their corporate borrowers. While Malaysia and Singapore has taken the lead in terms of bank consolidation through their bank merger exercise, other countries in the region also progressed in this area, albeit much more slowly. Thus in June 2002, the Indonesian Parliament approved a plan submitted by the government for the disposal of the remaining banks held by IBRA. This plan provided for the selling of a 51 per cent stake of Bank Danamon, 59 per cent of Bank Lippo, 30 per cent of Bank Mandiri, and the completion of the merger of five small banks (Artamedia, Bali, Patriot, Prima Express, and Universal) in the second half of 2002. In the Philippines, the central bank continued the moratorium on new bank licences in an effort to encourage the sale and purchase of existing banks for those who wished to exit or expand in this sector. In terms of corporate restructuring, Malaysia continued to take the lead among the crisis-affected countries as its Corporate Debt Restructuring Committee (CDRC) resolved forty-seven cases or 98 per cent of those it accepted, with a total value of RM43.97 billion. With that, it officially ceased operations in August 2002. In Indonesia, the Jakarta Initiative Task Force (JITF) had registered 126 corporate restructuring cases with debt value of $29.4 billion, and completed the mediation of 77 cases with a debt value of $16.9 billion by September 2002. In Thailand, as of end-August 2002, the Corporate Debt Restructuring Advisory Committee (CDRAC) had approved 14,850 target debtors with outstanding credit of 2,625 billion baht to enter the voluntary workout process. Of these approved target debtors, 10,124 cases with credits outstanding of 1,298 billion baht were successfully restructured, while 4,661 cases with outstanding credit of 1,162 billion baht remained unstructured and subject to court litigation. It can be concluded that by 2002, the pace of banking and corporate restructuring was rather uneven in the crisis-affected countries. While Malaysia made significant progress, Thailand and Indonesia progressed at a slower pace. The slower pace of restructuring can impede the growth of these countries as banks will continue to hesitate lending to weaker firms, thereby reducing the capacity of monetary policy from stimulating the economy. Has Southeast Asia Fully Recovered from the Asian Financial Crisis of 1997? It has been five years since the region lost the spectacular growth rates that were experienced by the crisis-affected economies in the decade before the

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Economic Overview of Southeast Asia in 2002

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crisis. While the region as a whole recovered remarkably and rather quickly from the crisis, the pace of recovery was uneven between the economies in the region and more importantly it also fluctuated over time so that growth continued to be vulnerable since the crisis. Although external shocks might have contributed to the some of this fluctuation, the uneven pace of recovery might also have been hindered by the slow progress in reforms in some of these economies and the relatively weak recovery in investment in the region as a whole. The loss in attractiveness in the region as host economies for foreign direct investment (FDI) implied a greater need to focus on enhancing the investment climate in the region and concurrently encourage domestic investment in order to achieve a more stable growth. At the same time, even as the region continued to struggle with stabilizing its recovery, it had to face increasing new pressures with the rise of China and the emergence of bilateral trade negotiations. It is, therefore, important to assess these new pressures as they may disrupt the recovery process in the region if appropriate strategies are not taken to enhance domestic capacities to compete in the wake of heightened competition associated with the rise of China and increased liberalization at the bilateral level. Rise of China: Challenges and Opportunities for ASEAN Since China opened up its economy in 1978, it had moved rapidly from its ranking as the thirty-second largest trading nation to the sixth largest trading nation in the world by 2001. China’s meteoric rise in world trade created considerable interest among policy-makers, researchers, and firms pertaining to its impact on the rest of the world. Its accession to the World Trade Organization (WTO) in 2001 after many arduous years of negotiations generated similar interest on the impact of its ongoing trade liberalization for its trading partners. At the same time, China has also become the largest developing host economy for FDI in the last decade or so. This created both fear and envy from other host economies, especially developing host economies as its rise as the most attractive host economy was perceived to be at the expense of other developing host economies. The fears of FDI diversion mounted in recent years as inflows of FDI into China actually increased to US$47 billion in 2001 from around US$40 billion between 1996 and 2000 when inflows of FDI declined in other parts of the developing world.12 Similarly its rapid growth in the last decade or so also fuelled heated debate over the reliability of its data and the sustainability of its growth in the short to medium term as well as in the longer run. For Southeast Asia, as it struggled to find its feet after the financial and economic crisis of 1997/98, the strong growth in China was a source of fear as many perceived China’s growth as a threat to their own recovery and future growth. What then are the main challenges for the region?

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Tham Siew-Yean

Challenges First of all, liberalization and the shift towards a market-oriented economy are posing enormous challenges within China itself. While China has been moving towards increasing liberalization even before its accession to the WTO, the bulk of the liberalization and market-opening commitments that comes with its accession is due to take place in the post-accession years. Although some may have queried the sincerity of China towards honouring its accession commitments, it is perhaps a misplaced question as the more important issue at hand is the capacity and capability of China in handling the transition towards free enterprise. While liberalization in China is taking place during a period of rapid growth, it does not imply that all of China is ready and is equally enthusiastic about the forthcoming changes. The uneven pace of development in China as witnessed by the coexistence of efficient private foreign and domestic enterprises together with the less efficient state-owned enterprises (SOEs) implies that the increasing competitive pressures accompanying liberalization will be vehemently resisted by some. A key issue in ensuring a smooth transition is therefore the ability of China to manage this resistance that has already been articulated in the form of increasing strikes and protests as workers are laid off with the forced exits of less efficient enterprises. Moreover, the disparate development in China is not confined to sectoral issues alone. Regional disparities and increasing income disparities are other sources of potential instability in China’s bid towards reforming its economy. Consequently, the immense challenges faced by China in managing its transition towards market-run economy can have potentially severe implications for the Southeast Asian region as any instability in China can create negative spillovers due to the increasing trade and investment ties between China and the region. Therefore while many worry over the rise of China, it should be cautioned that the collapse of China, if it fails to manage well the challenges of its transition may also destabilize recovery in the Southeast Asian region. Secondly, the challenges posed by China to the different economies in the region are not necessarily the same as these economies are not homogeneous in their stages and pace of development. Even the much touted labour-cost advantage of China does not imply that all the Southeast Asian economies are unable to compete with China in labour-intensive products as the average labour productivity in China is also equally low due to the inefficient operations of the SOEs. Indonesia, for example, has average wages that are higher than China in 1996 but its average unit cost is also less than China. In fact the ratio of Indonesian to Chinese-level labour costs was 0.4 in the labour-intensive clothing industry in 1998 where the low Chinese labour costs gave it a strong competitive edge.13 Given the disparate impact on the individual economies within ASEAN, forming a cohesive regional strategy can be problematic. Finally, the other main challenge posed by China’s liberalization is its potential impact on China’s development. China clearly has no intention of

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remaining a low-cost producer of low value-added products since it shares the same aspirations as other developing economies in the region in its drive to move up the technology ladder. Thus the critical question is whether China can leapfrog up its development path before its competitors in Southeast Asia can do so. A further question is whether China has to leave the labour-intensive segment of production in order to shift to the higher value-added segments. The current evidence seems to indicate that while China continues to have a strong competitive edge in the assembly-end of skill and technology-intensive products like Malaysia, it is also improving its capacity to produce more complex parts, components and finished products.14 Moreover, Japanese FDI that relocated to China were not all of the labourintensive variety. Instead there was also a migration of a variety of large-scale industries, including capital- and skill-intensive ones such as chemicals and consumer electronics.15 When the human capital component in terms of scientists and engineers is added to the picture, it would appear that China may have the potential to leapfrog and may do so before exhausting its low labour-cost advantage if the appropriate FDI flows continue to flood this country. Opportunities Continued growth of China and its commitments to open up its markets with its accession in the WTO do present opportunities for increased exports to China. The love of variety from the consumers implies that there is room for increased imports of consumer goods in line with the increasing prosperity in the country. Concurrently the increase in production in China also implies a greater need to import capital and intermediate goods and raw materials such as palm oil, and this augurs well for the natural resource producers in Southeast Asia. Increasing integration with FDI production will also increase intra-industry and intra-firm trade among the affiliates of the MNCs that operate in China and the region. Nevertheless, competition is severe as enterprises within the region will not only have to compete among themselves but also with enterprises from other countries as well as the private domestic entrepreneurs from within China itself. Outside manufacturing, some service industries that will benefit from an increasingly prosperous China are tourism and education. Regional Integration One commonly suggested way to counter the challenges of China is to foster greater regional integration at the ASEAN level. This appears to be a logical argument based on the contention that the ASEAN Free Trade Area (AFTA) was launched in order to enhance the region’s global competitiveness, rather than increasing intra-regional trade.16 Deepening integration will then accelerate the regions’ competitiveness thereby enhancing its ability to compete with China. How far has this been achieved for ASEAN?

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AFTA The dawn of 1 January 2003 marks exactly ten years since the launch of AFTA on 1 January 1993. While the progress of AFTA has been marked by public pronouncements of earlier completion dates, its credibility in reality has been jeopardized by inward-looking sentiments as exemplified by Malaysia’s backtracking on its automotive sector liberalization. Therefore, although the idea of moving beyond mere tariff liberalization has been mooted way back in the mid-1990s, progress has been slow. The agenda to extend AFTA beyond the liberalization of barriers of trade in goods or the “AFTA-Plus” programme has included the elimination of non-tariff barriers (NTBs), a Framework of Agreement on Services, an ASEAN Investment Area, an Agreement on Intellectual Property, co-operation in customs as well as co-operation in tourism. However, the AFTA-Plus programme has met with limited success thus far as co-operation has been confined to harmonizing customs procedures and tariff nomenclature and fast-tracking a common customs valuation method.17 Menon thus asserts that ASEAN must first widen before it can deepen integration. This is despite the admission that widening can pose problems for deeper integration as increasingly economically and socially diverse countries are brought under the ambit of ASEAN when the original ASEAN-6 was enlarged to become ASEAN-10 with the inclusion of the CLMV countries. Recent changes seem to indicate that ASEAN widening may be proceeding faster than deepening. Apart from the moves towards economic partnership between ASEAN and Australia and New Zealand, the proposed ASEAN-China Free Trade Area, which was endorsed by ASEAN’s ten leaders in Brunei in October 2001, represents another move towards enlarging AFTA. In November 2001, the establishment of an East Asian FTA was examined based on the East Asian Vision Report. Japan is reported to be hastening discussions for a FTA with ASEAN after the successful endorsement of the ASEAN-China Free Trade Area. The Taiwan Government has also reportedly proposed an ASEAN-Taiwan Free Trade Area.18 While in principle the widening of AFTA can enhance the competitiveness and perhaps restore some of the locational advantages of ASEAN as host economies for the MNCs that wish to adopt the China-Plus-One Strategy in order to hedge against their investments in China, the actual modalities of these FTAs is as yet unknown at this point in time. It is thus premature to conclude that all the efforts towards the enlargement of AFTA will revitalize the region’s economic dynamism. Bilateral FTAs Singapore’s foray into bilateral FTAs was spurred by the slow pace of liberalization at the regional level, its small domestic economy and its extreme dependence on trade. Thus far, Singapore has concluded FTA discussions with New Zealand, Japan, the European Free Trade Association, and Australia, while

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there are ongoing negotiations with Mexico, Canada, the United States, and the Republic of Korea.19 Although some countries in ASEAN (for example Malaysia) were against bilateral negotiations, others like Thailand have followed Singapore’s footsteps. Nevertheless, even Malaysia has of late indicated an interest in pursuing a FTA with Japan. The current sprout of FTAs is, however, not confined to the endeavours of the individual countries in ASEAN alone. The United States which is finalizing its first bilateral FTA in Asia with Singapore has also floated the idea of similar pacts with the other nine members of ASEAN.20 Apart from the theoretically well-known impact of FTAs on trade diversion, the pursuit of individual FTAs appears to undermine the sense of ASEAN as a community, thereby weakening the cohesiveness of the region. Hence it is pertinent to heed the cautionary notes sounded by some.21 First, there are technical problems with regards to rules-of-origin which may confuse investors while membership in multiple pacts may create contradictory obligations. Second, it will divert the already scarce resources in developing countries from preparing for the multilateral negotiations under the WTO. However, dissatisfactions with the progress of multilateral and regional efforts in trade liberalization may continue to encourage more countries to shift their attention towards bilateral trade pacts. The interest in bilateral negotiations may therefore only diminish if a successful new round of multilateral trade liberalization can be launched. Conclusion Leading economic indicators in Malaysia and Singapore have suggested that the earlier growth rates of the first three quarters of 2002 will not be sustained. In fact, the growth momentum, on an annualized quarter-on-quarter basis for Singapore has been reported to decline by 10 per cent after increasing by 13 per cent in the second quarter of 2002.22 Hence Singapore has shaved its forecasted growth for 2002 from 3–4 per cent to 2–2.5 per cent for the year 2002 (which is less than the forecast shown in Table 1) and to 2–5 per cent for the year 2003. Malaysia has maintained its forecast of 4 per cent for the year 2002, but this is also less than that forecasted by the ADB in Table 1. The Philippine’s manufacturing output is reported to have shrunk by 5.8 per cent during October 2002 from a year earlier due to lower production in twelve sectors, led by basic metals, chemical products, petroleum, and publishing and printing.23 The reported contraction is also putting the economic growth forecast for the Philippines at risk. The extent to which the fourth quarter growth will weaken is of course very much dependent on each economy’s links with the U.S. economy as well as on the global semiconductor trade. In this regard, Singapore remains extremely vulnerable while the larger and more diversified economies in ASEAN may be less affected. Nonetheless, the Bali terrorist bombings and the subsequent perceived association of the region with terrorism continues to

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affect investors’ confidence as well as the important tourist industry in the region. In the same way the looming war between the United States and Iraq may derail the incipient recovery in the region and further worsen the investment climate. Given these downside risks, uncertainty is greater at the end of 2002 than at the beginning of the year. If global economic and geopolitical conditions improve in 2003, it is possible that economic growth will improve towards the second half of 2003.

NOTES 1. International Monetary Fund (IMF), World Economic Outlook: September 2002 (Washington, D.C.: IMF, 2002), p. 167. 2. Ibid., p. 26. 3. Indonesia, Malaysia, the Philippines, Singapore, and Thailand. 4. Asian Development Bank (ADB 2002a), Asia Economic Monitor 2002: October 2002, (Accessed on 18 December 2002), p. 39. 5. ASEAN-5, excluding Indonesia. 6. Asian Development Bank (ADB 2002a), Asia Economic Monitor 2002: October 2002, (Accessed on 18 December 2002), p. 41. 7. Ibid., p. 41. 8. Ibid., p. 7. 9. Asian Development Bank (ADB 2002b), Asian Development Outlook 2002 Update, (Accessed on 18 December 2002), p. 9. 10. The information in this section is obtained mainly from the ADB (2002a), pp. 11–13. 11. Denis Hew, “ASEAN: Economic and Financial Developments in 2001”, Southeast Asian Affairs 2002 (Singapore: Institute of Southeast Asian Studies, 2002), p. 33. 12. United Nations Conference on Trade and Development (UNCTAD), Trade and Development Report 2002 (Geneva: United Nations, 2002), p. 154. 13. Ibid., p. 159. 14. Ibid., p. 167. 15. Ibid., p. 156. 16. Hadi Soesastro, “The ASEAN Free Trade Area: A Critical Assessment”, Journal of East Asian Affairs XVI, no. 1 (Spring/Summer 2002): 37. 17. J. Menon, “The Evolving ASEAN Free Trade Area: Widening and Deepening”, Asian Development Review 18, no. 1 (2002): 70. 18. The Star, 14 November 2002, p. 20. 19. . Accessed on 1 December 2002. 20. The Star, 21 November 2002, p. 15. 21. R.S. Rajan, R. Sen and R. Siregar, Singapore and Free Trade Agreements: Economic Relations with Japan and the United States (Singapore: Institute of Southeast Asian Affairs, 2001), pp. 69–73. 22. . Accessed 30 December 2002. 23. The Asian Wall Street Journal, 30 December 2002, p. A3.

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Southeast Asian Affairs 2003, pp. 39–51

INDIA’S RELATIONS WITH SOUTHEAST ASIA TAKE A WING

Satu P. Limaye

Introduction Speaking at the inaugural India–ASEAN Summit held in November 2002 during the Eighth ASEAN Summit in Cambodia, Singapore’s Prime Minister Goh Chok Tong portrayed India as one wing of ASEAN’s jumbo jet, with the People’s Republic of China (PRC) and Japan as the other wing.1 Leaving aside whether such a plane could take off, much less land, safely, the comment describes, certainly inadvertently, India’s idiosyncratic ties with Southeast Asia both bilaterally and relative to the region’s other formal partners. These attributes include: fresh and ancient links; importance and marginality; episodic engagement and occasional estrangement with long spells of detachment; and mutual insensitivity and over-sensitivity. The erratic connections between India and Southeast Asia mean that a linear review of political, economic, and security ties will yield only a partial picture of current and possible future India–Southeast Asia relations. The approach employed here, therefore, is to briefly review the features of India–Southeast Asia relations, and then examine the manner and extent to which India’s domestic politics and economics, its South Asian neighbourhood relations, and its foreign policy generally impinge upon its ties with Southeast Asia. For it is precisely these factors that have both facilitated and constrained India’s rapprochement with Southeast Asia beginning in the early 1990s, and are likely to shape relations in the coming decade. The chapter concludes with a brief assessment of India–Southeast Asia relations. The Curious Characteristics of India–Southeast Asia Relations Though India’s membership in Southeast Asia-wide political organizations is quite new (as are these organizations themselves), India’s role in regional politics is not. The November 2002 inaugural India–ASEAN summit marks the acme of India’s incremental inclusion in a network of ASEAN-driven initiatives that began with the establishment of an India–ASEAN “sectoral

SATU P. LIMAYE is Director of Research at the Asia–Pacific Center for Security Studies in Hawaii, USA. The views expressed in this article are those of the author and do not reflect the official policy or position of the U.S. Department of Defense, the United States Pacific Command, or the Asia–Pacific Center for Security Studies. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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dialogue” in 1993. In 1995, India was elevated to the status of a full dialogue partner, and a year later India participated, for the first time, in the ASEAN Regional Forum (ARF). India is not included, however, in the ASEAN Plus Three grouping (including China, South Korea, and Japan), but instead being tacked on to ASEAN in a “Plus One” relationship.2 This indicates India’s still peripheral role relative to ASEAN’s other Asian partners. Despite being one of the newest members of Southeast Asia’s multilateral initiatives, India’s contemporary political role in the region began in the 1940s and 1950s when India supported nationalist struggles in Southeast Asia, pushed for Asian solidarity and championed the Non-Aligned Movement (NAM). For many reasons, discussed below, India virtually disengaged from the region, beginning in the early 1960s, and effectively did not re-engage until it launched a “Look East” policy in the early 1990s. Hence, India’s now decade-long association with Southeast Asia’s multilateral fora, combined simultaneously, though intermittently, with high-level bilateral diplomacy, marks a slow and fitful renewal of India’s political involvement in the region. A second notable feature of India’s relations with Southeast Asia is that, notwithstanding the newness and inconstancy of political ties, India’s “organic” ties with the region in terms of history, culture, and faith are arguably the deepest, richest, and most apparent of any of Southeast Asia’s external partners. Buddhism, Hinduism, and to a lesser extent Islam, as well as traders, scholars, and in some ancient cases, rulers inextricably intertwine India and Southeast Asia. The presence of millions of Southeast Asians of Indian origin, as well as thousands of Indian labourers, principally in Malaysia and Singapore, reinforces these ties. India’s historic links with the region have been benign, and viewed by Southeast Asia as such. India has not invaded Southeast Asia, supported antigovernment insurgencies, or fought wars with regional countries. If India carries a “burden of history” with Southeast Asia, it is one of occasional irritation — not intervention or invasion. Early on, Prime Minister Jawaharlal Nehru’s distant, sometimes haughty style had provoked suspicions about his and India’s leadership ambitions towards the region. Much later, New Delhi’s tacit support of Vietnam’s invasion of Cambodia and the former Soviet Union’s December 1979 invasion of Afghanistan, as well as its bungled handling of its own application for ASEAN dialogue-partner status, also annoyed the states of ASEAN at the time. Indian insensitivity has been matched at times by Southeast Asia’s oversensitivity. Southeast Asian officials have privately squirmed at Indian references to shared cultural, historical, and religious ties, usually made by Indian officials to highlight a bond on which to build an otherwise thin relationship, out of concern that India views Southeast Asia as “derivative” of greater India. One wonders whether such concern reflects Southeast Asian sensitivities about its

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own nationalisms and intra-regional debates about an “Indianized Southeast Asia” rather than any Indian ambitions. In fact, Indians, contrary to the historical record, have little notion of a natural relationship with Southeast Asia. This is evident in the very few academic programmes or civil society organizations in India that deal with the region. The disconnect has been noted by the Indian Sinologist, Giri Deshingkar, who once observed, “[b]efore the British rulers told us, we Indians did not know that we were Asians. In fact, we did not even know that we were Indians… When we were told we were Asians, we did not know what to make of this Asian connection.”3 Even more than irritation, a remarkable feature of India–Southeast Asia relations during the past half-century has been India’s isolation from and irrelevance to the region. Economically, India’s trade and investment ties with Southeast Asia, though rising since the 1990s, are nearly the lowest among the region’s external partners. India’s insistence on a near-autarchic, inward-looking and over-regulated economy until the start of the 1990s made it increasingly irrelevant to a dynamic Southeast Asia. At least on the economic front, India largely isolated itself. The political story is more complicated. Apart from the heyday of India’s involvement and concern about Southeast Asia from independence in 1947 until its loss in the 1962 Sino–Indian border war, India has been all but missing in Asia until the past decade. Many reasons explain this disengagement, the primary one being India’s drift closer and closer to Moscow and away from Washington during the Cold War. In particular, India’s pro-Soviet leanings impinged negatively upon Southeast Asian perceptions when India approved Vietnam’s invasion of Cambodia and later the Soviet Union’s invasion of Afghanistan. Both decisions alienated much of non-communist Southeast Asia. Other factors led India out of Asia, too. Defeat at the hands of China sapped India’s confidence and soured Asian (and other) countries’ expectations about India’s prospects. India’s focus on Pakistan, including the wars in 1965 and 1971, diverted Indian attention. Mrs Indira Gandhi, who became Prime Minister in 1966, initially was politically weak and spent considerable efforts consolidating power during the 1960s and 1970s. After the oil shocks in the 1970s, India was drawn closer to the Middle East, upon which it relied for energy, business, and remittances. During the dying days of the second Cold War, exaggerated concern about India’s naval expansion and militar y procurements fuelled concern about India’s intentions.4 All of these factors tended to drive India and Southeast Asia apart. Beginning in the 1990s, however, India and Southeast Asia began a rapprochement as India launched a so-called “Look East” policy. Three broad sets of issues — India’s domestic politics and economics, its regional relations in South Asia, and its evolving foreign and security policies — set the context in which India and Southeast Asia re-engaged. An examination of these factors will illuminate the opportunities and constraints of India’s relations with Southeast Asia.

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India’s Domestic Politics and Economics India’s domestic politics and economics have been regarded correctly as negative variables in India–Southeast Asia relations. India’s crisis-prone and chaotic internal situation does monopolize New Delhi’s attentions and energies. Meanwhile, its long closed and heavily regulated economy keeps external interest at bay. Certainly, for Southeast Asia, India’s politics and economics have diminished the country’s attractiveness as a partner.5 Asked not long ago about India’s possible role in the wider Asian region, a senior Southeast Asian official said it would have one, “if India was still around.”6 India’s perils are hard to ignore. It took a number of blows to its body politic and economic during the past decade. These traumas included the eradication of two generations of the ruling Nehru-Gandhi dynasty through assassination, the emasculation of the dominant Congress Party that had led the country to independence and governed post-independence India for all but a few years, the rise of caste, regional and Hindu nationalist parties, a series of short-lived, weak coalition governments, increased inter-caste and Hindu–Muslim violence, a raging separatist insurgency in Kashmir and the deep erosion within India of the so-called Nehruvian consensus that encompassed socialism, secularism, and non-alignment as the guiding principles of the country. Nearly simultaneously, India’s economy was undergoing its own profound crisis. In 1991, India was on the verge of default. The loss of barter and collapse of other special economic relationships such as that with the USSR and Eastern bloc were also traumatic. India was then forced to jettison its particular blend of Fabian socialism and pursue market-oriented and outwardlooking reforms. Resistance to reform came from many sources: cultural suspicion of the material,7 wariness of foreign economic involvement (of the neo-colonialist “British came as traders and ended up as rulers” variety), and bureaucratic and business interests within India. Commitment to economic reform during the past decade has therefore wavered. India’s politics and economics could not have been in starker contrast with those of Southeast Asia during this initial decade of re-engagement. To employ a boxing metaphor, India was on the ropes while Southeast Asia was punching well above its weight. Still, what is striking is that India and Southeast Asia began their rapprochement during arguably the most traumatic years in India’s national life, and at the acme of Southeast Asia’s success. Contrary to conventional wisdom, however, to some degree, it was precisely this marked asymmetry that facilitated an India–Southeast Asia rapprochement. Unsurprisingly, the initiative came from India. For India, improved relations with a thriving Southeast Asia were necessary for possible inclusion in the wider Asia–Pacific community and evolving economic regionalization efforts. This web of relationships, both bilaterally and multilaterally with Southeast Asia, was deemed essential to avoid over-dependence upon the sole remaining superpower (the United States), to retain India’s cherished but pock-marked

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“strategic autonomy”, compensate for the loss of political and economic support from the former Soviet Union and Eastern Europe, and escape marginalization in a profoundly altered international arena. In essence, from India’s then precarious vantage point, a hand extended to Southeast Asia might not have led to its being lifted up, but could have prevented, or at least delay, its fall. Given Southeast Asia’s strengths at that time, an unthreatening India was less important, but still potentially useful. Better ties with India could increase ASEAN member states’ economic and political flexibility among the major Asian powers, widen the balance of power in the region, forge a broader front against perceived Western pressures on human rights, democracy and trade issues, and create a partnership in trade, joint ventures, and technology collaboration with an India slowly and begrudgingly loosening its economy. Individual Southeast Asian states could find uniquely tailored benefits in an Indian relationship, whether regarding the supply of military spare parts or software development. Today, ten years into their rapprochement, India’s and Southeast Asia’s domestic political and economic situations are less asymmetrical. Unfortunately, this is not so much because India’s fortunes have improved dramatically as much as because those of Southeast Asia have encountered hard times. Since what began as a financial crisis in 1997, Southeast Asia’s domestic political and economic outlook has become more problematic. The recent discovery of terrorist cells in Southeast Asia and a series of actual (for example, the Bali blasts) and planned attacks in the region have further impacted on hitherto positive perceptions of Southeast Asia’s once vaunted stability and prosperity. In this context, the mutual domestic and economic preoccupations of both India and Southeast Asia will constrain their relationship while at the same time motivate them to seek low-key, pragmatic opportunities for mutual advantage. Such an approach is visible in recently announced initiatives that India and Southeast Asia plan to pursue. Some of these focus on making India a more attractive trade and investment partner. India’s total trade with ASEAN stands at only US$10 billion. This compares highly unfavourably with that of the United States at $120 billion, that of Japan at $116 billion, that of China at $70 billion, and even that of South Korea at $32 billion.8 Mutual investments are even smaller. India’s economic ties with Southeast Asia are in their infancy, partly because India’s trade liberalization started only a decade ago and is far from complete. Moreover, trade has been growing steadily — 30 per cent in the past three years. Against this background, India’s November 2002 offer to Southeast Asia of a Regional Trade and Investment Arrangement (RTIA), mimicking free trade proposals by China and Japan, if actually implemented, could increase modestly India–Southeast Asia trade and investment ties in the future. Concurrently, a number of initiatives have been launched by both sides to find niche areas for India–ASEAN co-operation, such as human resource development, transport and infrastructure collaborations, science as well as

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information and space technology, that could help expand trade and investment ties. The establishment of an ASEAN–India Task Force on Economic Linkages to enhance economic ties was also agreed upon at the first ASEAN–India summit in November 2002. Another avenue of greater India–ASEAN co-operation could be India’s increased support for the Initiative for ASEAN Integration (IAI), under which India would offer preferential tariff treatment and human resources development support for the new, least developed members of ASEAN. Notwithstanding all these declared commitments, it remains to be seen how much, not to mention how fast, India–Southeast Asia economic ties will increase. The record up to now has not been encouraging, though bullish assessments exist.9 If no drama can be expected in economic relations between India and Southeast Asia, one dimension of India’s domestic politics that might impinge more on Southeast Asia in the years ahead is the increase in India of Hindu–Muslim violence. This is all the more so in an era of terrorism laced with religious, and inevitably ethnic overtones in multicultural societies such as those of Southeast Asia. India’s Hindu–Muslim violence has the potential to inflame Southeast Asian Muslims against their Hindu neighbours. There was an unconfirmed report in June 2002, for example, that an important Islamic cleric in Mecca, Saudi Arabia, had denounced the massacres of Muslims during the Gujarat riots in India. Such mosque speeches, which are spread throughout Southeast Asia, could exacerbate Hindu–Muslim tensions in Southeast Asian states where these religious communities live side by side. The rise of Hindu nationalism in India might also embolden ethnic Indian Hindus in Southeast Asia to be more assertive. Though there is no evidence that this has occurred, worries already exist in some countries about ethnic Southeast Asian Indians’ receptivity to radicalism.10 Finally, India’s Hindu–Muslim violence, if linked in Southeast Asian publics’ minds with the Kashmir dispute, could give greater resonance to the issue in the region. Until now, the Kashmir dispute, unlike the Israeli–Palestinian dispute, has had little popular significance in Southeast Asia. However, if Hindu nationalism and violence against Muslims grows in India on the one hand, and Islamic identification and anti-Indian sentiment heightens in Southeast Asia on the other, the resonance of Kashmir to the public and governments of Southeast Asia could grow. In such an event, India’s political relations with Southeast Asia could become considerably more strained. India’s Neighbourhood If India’s domestic politics and economics have been off-putting to Southeast Asia, though not an insurmountable obstacle to closer relations, the same is true of India’s role in South Asia. Three particular facets of India’s relations with its immediate neighbours impinge upon India–Southeast Asia ties. First, India is perceived in Southeast Asia as behaving like a “regional bully” towards

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its small neighbours. This was especially true around the time of India’s initial rapprochement with Southeast Asia in the early 1990s. India had then dispatched peace-keeping troops to Sri Lanka, participated militarily in quelling a coup in the Maldives, and been embroiled in a dispute with land-locked Nepal regarding a trade and transit treaty. Southeast Asians have also reportedly been troubled by India’s unwillingness to “follow the example of post-Sukarno Indonesia by eschewing an overtly assertive role despite its size”.11 A second Southeast Asian concern, drawing from its own relatively successful experiences as a regional grouping, is the lack of co-operation in South Asia. Thirdly, and the most direct way in which India’s South Asian relations impinge upon Southeast Asia, is the India–Pakistan dispute, including Kashmir. Today, as with India’s domestic political and economic fronts, the salience of Southeast Asia’s concerns about India’s behaviour in South Asia and the asymmetry between South Asia and Southeast Asia’s situations has altered. The South Asian region is far from being a co-operative community, but neither is it with the exception of India–Pakistan relations, openly conflictual. Moreover, the gap between South Asia’s troubles and those of Southeast Asia are not nearly as stark as a decade ago. If India is unenthusiastic about regional co-operation in South Asia, Southeast Asian officials have spoken openly of “leap-frogging” their own region.12 Finally, the most powerful states in the two respective regions have their own problems with their neighbours. In India’s case, this remains the burden of history and desire for pre-eminence. In Indonesia’s case, the latest problem is its weakness and perceived unwillingness to take action against radical Islamist elements that are alleged to have committed terrorist acts. Whatever disappointments Southeast Asian countries have about India’s behaviour in South Asia and the low level of regional co-operation there, it is the India–Pakistan and Kashmir disputes that most directly impinge upon their ties with India, and they do so in a number of ways. First, Southeast Asia wishes to keep India–Pakistan tensions from being aired at Southeast Asia fora or becoming a staple of India’s and Pakistan’s competitive diplomacy in the region.13 A second consideration for Southeast Asia has been the membership choices it has had to make between India and Pakistan. So far, Pakistan, unlike India, has been denied full membership in ASEAN-initiatives, not least because of India’s heavy lobbying and greater relevance to Southeast Asia. In July 2002, at the ninth annual ASEAN Regional Forum (ARF) summit, India’s Foreign Secretary repeated the mantra that Pakistan’s inclusion in the grouping requires consensus, including that of India. He also conditioned Pakistan’s inclusion on its becoming a democratic and moderate state that “gives up its policy of using terrorism as an instrument of state policy.”14 Thirdly, and related, ASEAN has been confronted with the politics of Pakistan’s exclusion not only by some of its own members who favour it, but by other dialogue partners who have sought to push it. A case in point is Japan’s proposal to include Pakistan in the July 1998 ARF summit, following the nuclear tests on the subcontinent.15

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Finally, Southeast Asia worries, as does the rest of the world, about the prospect of war between India and Pakistan, two nuclear-armed countries. However, it is not likely that, barring any dramatic new developments, the India–Pakistan conflict will be a critical variable in shaping India’s relations with Southeast Asia. ASEAN will continue to urge, as it did at the thirty-fifth ASEAN Ministerial Meeting in July 2002, that India and Pakistan “resume immediate dialogue, strengthen their co-operation and resolve their differences through peaceful means”. It is highly unlikely that ASEAN will launch a major diplomatic effort to mediate the India–Pakistan dispute. As then Philippines Foreign Minister, Domingo Siazon, once said “[ASEAN] do not wish to involve ourselves in Kashmir, it is outside our footprint. We’ll leave it to some other braver country.”16 Irritating, disturbing and distracting as India–Pakistan tensions are for India–Southeast Asia relations, they have fewer fundamental implications for the region than do other regional flash-points, such as cross-straits, the Korean peninsula, or the competing claims in the South China Sea. Moreover, notwithstanding the complications that the India–Pakistan dispute creates for India–Southeast Asia relations, it should be noted that an exceptionally sustained, bloody, and potentially dangerous period in India–Pakistan relations and the Kashmir dispute have not derailed the India–Southeast Asia rapprochement in the past decade. India’s International Relations The international environment and India’s and Southeast Asia’s respective foreign and security policies in it have accounted for much of the dissonance in India–Southeast Asia relations. In large measure, it was the Cold War, and the different decisions of India and the ASEAN-6 regarding how to deal with it, that led to their detachment and even estrangement. Changes on these fronts have made possible an India–Southeast Asia rapprochement. Again, as with domestic politics and economics and their respective regional situations, the contrast between India’s and Southeast Asia’s international positions at the beginning of the 1990s could not have been more complete. India stood at the end of the Cold War bereft of its main political, economic, and military partner — the former Soviet Union. India’s omni-directional foreign policy left it with few close friends and no powerful ones. The ASEAN-6, meanwhile, had weathered the Cold War well. The Vietnam War was receding into memory. Peace accords had been fashioned for Cambodia. The Soviet threat had all but evaporated. China and the region were starting to normalize bilateral ties. The ASEAN-6 had chosen to have close relations with the Cold War’s winner — the United States. Success and failure produce their own opportunities and anxieties. India’s failed foreign policies, and the resulting anxieties, motivated a more “realistic” foreign policy and a “Look East” search for friends. Southeast Asia’s successful foreign policies permitted it to take the role of energetic institution-builder and receptive host to extra-regional players, as did

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anxieties that the end of the Cold War would create a power vacuum in the region. Three broad factors impinge upon India’s relations with Southeast Asia today. The first is India’s more assertive, realistic foreign policies, including the decision to declare itself a nuclear weapons state and its potential strategic role in Southeast Asia. A second factor is India’s relations with Russia, China, and the United States. Finally, terrorism has emerged as a variable in international relations. India as an assertive foreign policy actor is a new phenomenon. Southeast Asia has simultaneously held contradictory outlooks about India in this regard. On the one hand, India has been regarded as a South Asian regional bully that, after its victory in the 1971 India–Pakistan war, and with the conclusion of the Soviet occupation of Afghanistan and the consequent end of a U.S.– Pakistan relationship, finally emerged as primus inter pares in South Asia. Added to this was some anxiety at the end of the Cold War about India’s naval modernization and intentions in maritime Southeast Asia. On the other hand, India has been regarded as a foreign policy loser. India’s decision to conduct nuclear tests in 1998 was meant, in part, to announce the country’s entrance into foreign policy realism, and relevance. The impact of India’s decision to “go nuclear” on relations with Southeast Asia has been minimal. Two months after the tests, during the traditional skits at the fifth ARF meeting, India’s then external affairs minister Jaswant Singh sang, to the tune of a well-known Indian film song, why such a fuss a over a few crackers in the Thar [India’s nuclear test site]. They weren’t as loud as Nevada or Lop Nor/Sherrif [Nawaz Shariff, former Prime Minister of Pakistan] took his ones and joined the fun/ Evita [U.S. Secretary of State Madeleine Albright] lost some sleep, Juan [China’s President Jiang Zemin] proliferated in the sun… We Hindustani, you Aseani.

Though individual Southeast Asian responses varied, the overall reaction in the region was restrained compared with the criticisms in the United Nations Security Council and the Group of Eight, or certain countries such as Japan. Within two years, by the time of the seventh ARF summit in July 2000, criticism of India’s nuclear tests had all but ceased. If anything, the nuclear tests in the subcontinent have pushed ASEAN and the ARF to make stronger statements about disarmament. India has also welcomed the entry into force of the Southeast Asia Nuclear Weapon-Free Zone (SEANWFZ) Treaty. Earlier, India had offered to “fully respect” and make legally-binding the SEANWFZ. Non-ASEAN accession to the Treaty is open only to nuclear weapon states (NWS). India’s offer, noted but declined, was an attempt to get de jure recognition for its nuclear weapon status.17 Though not strident in its criticisms of India’s nuclear tests, Southeast Asia has resisted, as evident in its rejection of India’s offer to sign

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the SEANWFZ, giving any legal recognition of India’s self-declared nuclear status. Unless India renews testing or there is a grave danger of an India–Pakistan nuclear war, India’s nuclear weapons will not have an important bearing on the development of it’s relations with Southeast Asia. Indeed, the only public mention of the nuclear issue at the first India–ASEAN Summit was a sentence in the joint declaration noting India’s welcome of the entry into force of the SEANWFZ. India’s security resonance with Southeast Asia is also relatively limited for now. India has begun, during the past decade, a series of confidence-building exchanges, including naval ship visits, joint exercises and other engagement activities, with the region. However, India’s security importance pales in comparison with that of the United States and China. Indeed, in the wake of the terrorist attacks of 11 September 2001, the United States has further increased its security presence and role in Southeast Asia. Still, India continues to pursue moderate military contacts with certain countries, such as Vietnam, that include the sale of spare parts and training exchanges. A more ephemeral question is India’s relevance to the strategic balance in the region. At a minimum, India has clearly made progress in blunting perceptions of India as a problem, even a threat, to the region by highlighting its desire to be part of the evolving regional security framework, and through confidence-building and exchanges noted above. An implicit Sino–Indian competition in the region is extant, but at a very low level for a number of reasons. First, the United States is the strategic balance in the region, and that will not change any time soon. The role of other countries, on their own, or competitively with others, will merely result in a ripple, not a wave, to the strategic balance. Secondly, China and India have sought to improve their bilateral relationship, and in any case, China is far ahead of India in terms of influence and role in the region. Prime Minister Vajpayee of India recently said that India has a “healthy competition with China”.18 Finally, notwithstanding Indian efforts and ambitions at military modernization, India is far from having an ability to deploy military assets in the region even if it wanted to. Changes in India’s relations with the former Soviet Union, China, and the United States are also favourable to India–Southeast Asia relations. Neither Southeast Asia nor India relies on the other for dealing with a rising China. However, both have an interest in expanding their contacts in a multipolar environment. Improved China–ASEAN and Sino–Indian relations allow India and Southeast Asia to pursue enhanced ties without urgency and undue mutual expectations. At times, some Southeast Asians have expressed concern about India’s intermittent efforts to portray itself as a political and military counter to China. Mak Joon Num, for example, has stated that such an approach by India “might have a negative impact on ASEAN attempts at security-institution building”.19 Still, as China continues to rise in economic power, political

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influence, and military capabilities, some Southeast Asian countries will share with India a desire to pursue co-operation. The diminution of the former Indo–Soviet relationship is also favourable to India–Southeast Asia ties. With Russia no longer a threat to the region either directly or by proxy, and the India–Russia relationship shorn of its military quasi-alliance trappings, a more benign view of India in the region has been evident during the past decade. Most importantly, improved U.S.–India relations also help to facilitate India’s relations with Southeast Asia, as nearly every Southeast Asian country (with the exception of Myanmar and to a lesser extent Vietnam, Laos, and Cambodia) has close ties with the United States, and Washington is no longer a constraint to enhanced India–Southeast Asia ties. Indeed, the Bush Administration has been explicit in articulating a role for India in the context of Asia, rather than just South Asia. This marks an important change in American thinking about the place of India in the wider Asia–Pacific strategic context. There have been both small and large indications of this revised U.S. thinking about India. For example, the “Bush administration reorganized the National Security Council staff, such that India is now the responsibility of the Senior Director for Asia, rather than the Middle East”.20 Another example is U.S. willingness to welcome Indian naval escorts of high-value shipping up to the Straits of Malacca. More substantively, there has been considerable speculation that enhancements in U.S.–India defence ties will have implications for the wider region. While improvements in U.S.–India relations have been real, there are also considerable limits to the pace at and depth to which they can improve.21 U.S.–India relations are far from becoming a major factor that will govern India’s interactions with Southeast Asia. The most that can be said at this stage is that improvements in U.S.–India relations have removed an important constraint on enhanced India–Southeast Asia ties. In sum, the international relations and security dynamics of the last decade have removed important hurdles to improved India–Southeast Asia relations. India–Southeast Asia Relations: Recalibration, not Reincarnation A decade into India’s revived relations with Southeast Asia, it is appropriate to describe them as an on-going recalibration rather than a reincarnation. In the absence of any dramatic developments in India, Southeast Asia or the international environment, several features of these ties are likely to persist in the coming years. India–Southeast Asia relations will move slowly and fitfully from indifference, isolation, and irrelevance to enhanced political, economic, and even security ties. India’s interest and attention will be reciprocated by Southeast Asia. Frustration will persist in Southeast Asia about India’s attention and attractiveness, both of which in turn will depend considerably on India’s domestic political and economic situation as well as relations with Pakistan. For India, the attractiveness of Southeast Asia will depend upon economic and

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internal developments there as well. The stark contrast between India’s weakness and Southeast Asia’s strengths so evident at the time of the start of their rapprochement are more leavened today. However, India will continue to be tugged in different directions, including towards the United States, Central Asia, and Europe. In a number of ways, India has so far fulfilled some of the ambitions of its “Look East” policy though there is a consciousness that it needs to do more. India has prevented a fall-out in relations with Southeast Asia after its nuclear tests. It has kept to a manageable level pressures regarding India–Pakistan relations and the Kashmir dispute, including preventing Pakistan’s inclusion in the ARF. New Delhi has gained membership in a number of Southeast Asian and wider Asia–Pacific regional organizations, thus avoiding further marginalization in the post-Cold War international environment. It has improved, albeit at a low level, trade and other economic ties with the region. India has succeeded in reducing suspicions about its intentions in the region through confidence-building efforts and political and security discussions. For its part, Southeast Asia has leveraged its influence through the inclusion of another large country in its institution-building efforts. Individual Southeast Asian countries have also enhanced bilateral ties with India. India’s relations with Southeast Asia are not a testament to dramatic balance of power games as much as a sign of a relatively minor recalibration of regional international relations some ten years after the end of the Cold War.

NOTES 1. “The Asean jumbo jet has one wing in the making in the East, through agreements with China and Japan. India’s proposal provides the second wing. With this, we can take off”. Cited in Chua Lee Hoong, “India makes trade offer to Asean”, Straits Times, 6 November 2002. 2. Similarly, India is not included in the Europe–Asia or ASEM dialogue, but has a stand-alone Europe–India summit. 3. Giri Deshingkar, “The Construction of Asia in India”, Asian Studies Review 23, no. 2 (June 1999): 173. 4. Some Southeast Asian analysts have claimed that these concerns were fanned by the West. “It was interesting though that the concern was fanned by certain sections of the West, who issued alarming reports about the development of the Indian Navy and its implications”. See Daljit Singh, “The Geopolitical Interconnection between South and South–East Asia”, in India and ASEAN: The Politics of India’s Look East Policy, edited by Frederic Grare and Amitabh Mattoo (New Delhi: Centre de Sciences Humaines, 2001), p. 28. 5. See Kripa Sridharan, “Regional Perceptions of India”, in India and ASEAN: The Politics of India’s Look East Policy, edited by Frederic Grare and Amitabh Mattoo (New Delhi: Centre de Sciences Humaines, 2001), p. 80. 6. Personal conversation with official in June 2002. 7. India’s current Finance Minister Jaswant Singh once remarked that “there is a dissonance between Indian aspirations and current economic thought, which places great emphasis on the concept of wealth not only in a nation’s life but also in its foreign relations. Lakshmi is certainly the goddess of wealth in India, and is so

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8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

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worshipped, but not above everything else and not all the time. Simultaneously venerating Lakshmi, enjoining people to produce as much [sic] they can because it is their dharma, and yet not being preoccupied only with the production of wealth is an aspect of Indian society that must be borne in mind”. Quoted in Satu Limaye (rapporteur), India’s Democracy at Fifty (International Forum for Democratic Studies, National Endowment for Democracy, September 1998). See “Trade in Asia: Every man for himself”, The Economist, 31 October 2002. All figures are in U.S. dollars. For example, a study by consultants McKinsey & Co. and the Federation of Indian Chambers of Commerce and Industry says that trade could reach US$30 billion by 2007. See Asiaint Weekly Report, 11 November 2002, www.asiaint.org. See M. Jegathesan, “Malaysia’s downtrodden ethnic Indians may resort to terror: Experts”, Agence France Presse, 3 June 2002. See Kripa Sridharan, op. cit., p. 80. See Ronald Montaperto and Satu Limaye, “Asians on America: Real Problems Don’t Get U.S. Attention”, International Herald Tribune, 26 July 2001. This was very much in evidence during the December 2001–June 2002 India– Pakistan military stand-off. See Felix Soh, “Article title”, Straits Times, 6 June 2002, p. 14. See Jasbant Singh, “India won’t allow Pakistan into security forum until it becomes democracy, India says”, Yahoo! News, 31 July 2002. For elaboration, see Satu P. Limaye, “Tokyo’s Dynamic Diplomacy: Japan and the Subcontinent’s Nuclear Tests”, Contemporary Southeast Asia 22, no. 2 (August 2000). Cited in Manoj Joshi, “ASEAN Regional Forum: Manila Serenade”, India Today, 10 August 1998, p. 54. See Satu Limaye, “India’s Latest Asian Incarnation”, Comparative Connections (Third quarter 2000), at Cited in Rajat Pandit, “‘Healthy competition’ between India and China: PM”, Times of India, 8 November 2002. See Mak Joon Num, “ASEAN–India Defence Interactions”, in India and ASEAN: The Politics of India’s Look East Policy, p. 149. Professor Harry Harding, “The Bush Administration’s Approach to Asia: Before and After September 11”, (Speech to The Asia Society, Hong Kong, 12 November 2001). See Satu P. Limaye, “U.S.–India Relations: Visible to the Naked Eye”, Comparative Connections, (4th Quarter 2001 [January 2002], Pacific Forum/CSIS.)

© 2003 Institute of Southeast Asian Studies, Singapore

Southeast Asian Affairs 2003, pp. 52–68

MARITIME PIRACY IN SOUTHEAST ASIA

Carolin Liss

Preface In November 1998, while en route from Shanghai to Port Klang in Malaysia, the Hong Kong registered cargo-ship Cheung Son was approached just off the west coast of Kaohsiung in Taiwan by a small boat which appeared to be a Chinese Customs vessel. Left with little choice, the captain allowed the officers on board his ship, which carried a cargo of furnace slag. Once on board the Cheung Son, the Chinese ‘officers’, dressed in uniform and armed with guns, threatened the crew and took control of the vessel. After being held hostage for ten days, all twenty-three Chinese crew members of the Cheung Son were bludgeoned to death and their weighted bodies thrown into the sea. After the killings, the pirated vessel was sold within China for about US$36,000. The new owner hired a new crew and reportedly sold the vessel to an unknown Singaporean party for US$300,000. The pirates, however, did not get away with their crime. In an interview granted to the foreign media, Chinese police officials recounted that investigation into the Cheung Son’s disappearance had begun when the owner of the vessel reported loss of contact with the ship. As fishermen found the first bodies of the murdered crew members, police learned that a man from Shanwei “went to sea and came back with a lot of money and a dented boat”. The police officers eventually located the boat and its owner, who was hiding in a fishing village. He told the police that he had lent his vessel to two other men who could be found in Shenzen. Acting on this information, 300 officers raided a karaoke bar, where the alleged members of the pirate gang were celebrating. In the course of further investigation, the Chinese authorities discovered that some of the gang members had been involved in at least two other serious pirate attacks between August and November 1998. This information and the discovery of a celebratory photograph, taken by the pirates on board the Cheung Son, led to further arrests. In total, more than fifty ‘pirates’,1 aged between twenty-one and sixty, were arrested. Among them, the alleged leader of the gang Sony Wei, an Indonesian, who had previously been involved in inspection work contracted out by the Chinese Customs authorities. All other gang members captured were Chinese. CAROLIN LISS is a Postgraduate Research Student in the School of Asian Studies, Murdoch University, Australia. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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In mid-December 1999, the arrested pirates were brought to trial in the Intermediate People’s Court of Shanwei, Guangdong Province, where they were charged with robbery, mass murder, the illegal possession of firearms, and handling stolen property. Most of the defendants, among them Lu Xu, an unemployed man from Shanxi, and Cai Mutong, a fisher from Lufeng, claimed that they were hired for a legitimate anti-smuggling mission. According to their statements both only later discovered the true nature of the voyage, but were too afraid to confront the ‘pirates’. Zhang Fenshen, a forty-two-year-old mechanic, told the court that the boat had sailed from an official border defence pier and added that he was not aware of any attack, as he was working in the ‘custom vessel’s’ engine room. The court also heard that the Indonesian Sony Wei had been commissioned by Liem Sioe Liong, a Chinese Indonesian tycoon, to hire a pirate gang to attack the Cheung Son. Despite such testimony, the court established that Weng Siliang, a businessman from Shanwei, and not Sony Wei, was the ringleader of the gang. According to the trial statements, Weng coordinated the attack from mainland China. He remained in Shanwei during the hijacking and was sent a sample of the furnace slag on board which he forwarded to Singapore to inquire if it could be sold there at a good price. Sony Wei told the court that the command to kill the crew also came directly from Weng. In regard to the executions, the prosecutor told the court that each gang member was ordered to kill at least one crew member and those who refused to obey were threatened to be thrown overboard. Thirty-eight of the defendants were eventually convicted of hijacking the Cheung Son and the court sentenced thirteen of the accused, among them Sony Wei and Weng Siliang, to death. One other pirate was sentenced to life in prison, while eighteen other gang members received sentences ranging from one to twelve years. Six further suspects were not sentenced, because they had earlier assisted the police with their investigations. The court also ruled that those convicted pay compensation of 2.66 million yuan to the families of the murdered crew members. In late January 1999 the death sentence for the thirteen pirates was confirmed. Before being led to the execution ground, however, the prisoners were locked in the courtroom with relatives, some food, and a large quantity of rice wine. Shortly after, the condemned pirates emerged, visibly intoxicated by the liquor, shouting and singing a rendition of Ricky Martin’s 1998 Soccer World Cup theme song “La Copa de la Vita” — “The Cup of Life”. One of the pirates, Yang Jingtao, who reportedly led the singing, jumped up and down in his shackles, singing “Go, go, go, olé, olé, olé” as he was led to one of the trucks that was to bring him and his companions to the execution ground. Turning from the truck to speak to journalists waiting in front of the courtroom, he yelled: “I want to thank all the Communist Party’s judicial system and thank my defending council for giving me a fair chance.” The thirteen pirates were shot by a firing squad a short time later.2

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Introduction The hijacking of the Cheung Son in late 1998 shows that piracy is not, as many believe, solely a phenomenon of the past. Although major hijackings remain the exception today, the case of the Cheung Son nonetheless provides a good example of some basic facts about modern day piracy. It illustrates for instance that modern pirates are able to attack large vessels and are willing to use extreme forms of violence to further their aims. The romantic notion still associated with piracy of a bygone era is clearly at odds with such acts of modern piracy. Furthermore, the arrest of the Cheung Son pirate gang and their trial in a Chinese court demonstrate that regional governments have begun to take the problem of contemporary piracy very seriously. However, that such pirates are arrested and brought to justice still remains rather exceptional. The Cheung Son case also illustrates that pirate gangs may comprise members from different countries and from different backgrounds, ranging from unemployed labourers to mechanics, fishers, and businessmen. The attack on the Cheung Son further demonstrates that certain attacks require extensive planning, and often involve a network of people based or operating in different countries. This article analyses the complex phenomenon of modern piracy, focusing on the Asian region in the post-Cold War era. It provides an overview of the different kinds of pirate attacks and the various types of pirates operating in the region today. Even though piracy is by no means restricted to Asia, with attacks also occurring in Latin American and African waters, the majority of incidents in recent years have been reported in the Asian region. As pirates regularly transgress national and regional borders, my analysis will focus upon the incidence of piracy in Southeast Asia and the South China Sea.3 The first part of this article discusses modern day piracy in the region in general terms, based on data published by the Piracy Reporting Centre in Kuala Lumpur. The second part focuses on the political, economic, and social developments, which have played a part in the increase and shape of modern piracy in the post-Cold War era. The third part then addresses the two different types of pirates, which I believe are operating in the region today. The ensuing part of the article then attempts to show that piracy is not an isolated problem but is linked to smuggling activity and a flourishing black market in the region. Here, I also discuss the much-publicized links between piracy and the activities of terrorists and separatist movements operating in the region, such as the Abu Sayyaf in the southern Philippines and the Gerakan Aceh Merdeka (Free Aceh Movement, or GAM) in Indonesia. In concluding the article, I argue that piracy should be taken seriously as a major security issue, but that a variety of social, economic, and political strategies are necessary in order to reduce the number of pirate attacks in the region. Modern Day Piracy Since the early 1970s incidences of piracy and crime on the high seas have steadily increased in Southeast Asia. While maritime raiding already existed

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when the Portuguese arrived in Asia in the sixteenth century, the region has once again become in recent years one of the global hot spots of vessel attacks. Even though attacks on merchant ships increased in the area in the 1970s and 1980s, they were often still small-scale and rarely involved physical injuries to those who were attacked — except for attacks on Vietnamese boat people in the Gulf of Thailand, which often featured violence and cruelty. This changed in the 1990s when pirates began operating on a larger scale and across regional borders. By the late 1990s more than half of all reported attacks on vessels worldwide occurred in Southeast Asia, in the Straits of Malacca, the Gulf of Thailand, the South China Sea, the sea north of Java, and in the waters surrounding the Sulu Archipelago. The modern day pirates, armed with parangs and modern guns, operate in fast motor boats and prey on fishers, barter traders, cruising yachts, refugee boats, and, increasingly, commercial shipping.4 The rising number of pirate attacks in the region throughout the 1980s prompted the establishment of the International Maritime Bureau’s (IMB) Regional Piracy Reporting Centre in Kuala Lumpur in October 1992. In its early years, the centre provided services only for the East Asian region, including both Northeast and Southeast Asia. However, in 1998, the name was changed to IMB Piracy Reporting Centre (PRC) and it now collects data and reports on piracy and armed robbery at sea from all around the world.5 The centre also issues warnings to seafarers, liaises with law enforcement authorities, issues consolidated reports to interested bodies, and regularly publishes reports on piracy and armed robbery at sea.6 While there are a variety of different definitions of piracy that often only consider attacks on the high seas, the PRC employs a more inclusive definition. It includes in its analysis any “act of boarding any vessel with the intent to commit theft or any other crime and with the intent or capability to use force in the furtherance of that act”.7 The PRC’s reports therefore include information on attempted attacks, attacks on vessels at anchorage or at berth, simple hit-and run robberies in territorial waters, as well as hijackings of vessels, such as the attack on the Cheung Son. For the purpose of this article the IMB’s definition of piracy will be adopted with the proviso that those acts have to be committed for private — as opposed to political — ends. According to data from the PRC the number of actual and attempted pirate attacks reported in the 1990s range from 90 attacks in 1994 to as many as 469 reported incidents in 2000. In 2001, the number slightly declined to 335 attacks, and there have been 271 incidents reported in the first nine months of 2002.8 (See Table 1.) However, the actual number of attacks may be much higher. According to Noel Choong, the regional manager of the PRC, more than 50 per cent of all pirate attacks remain unreported for a variety of reasons.9 Some ship owners for instance are reluctant to report attacks, as they fear that an investigation will delay their vessel even further, resulting in additional costs. Many also do not want to be regarded as unreliable carriers

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TABLE 1 Reported Actual and Attempted Attacks per Annum, 1991–2002 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 107

106

103

90

188

228

247

202

300

469

335

271*

NOTE: * Sub. total January to September only. SOURCE: ICC-IMB, “Piracy and Armed Robbery against Ships. Report for the Period 1 January–30 September 2002” (Barking, U.K.: ICC-IMB 2002), p. 5.

of freight or fear rising insurance rates. Governments and law enforcement agencies in the region are also often reluctant to disclose the number of attacks in their respective countries in order to preserve its reputation as a safe place for trade and passage.10 Furthermore, attacks on fishing boats and other small craft are rarely reported and, even when reported to the local police, are hardly ever communicated to the IMB and, therefore, do not find their way into the IMB’s statistics. However flawed, the IMB statistics nevertheless indicate that while Southeast Asia as a whole must be considered the most pirate-prone area in the world, there have been interesting shifts in the distribution of attacks across the region since the early 1990s. From 1990 to 1992 the waters between the Malacca and Singapore Straits were identified as the most pirate-infested. The narrow Malacca Straits is one of the most congested waterways in the world, and vessels have to be particularly careful as the Straits is beset by numerous shallow points, forcing vessels to reduce speed to ensure safe passage. These conditions are favourable for pirates, as it enables them to approach their vulnerable target without difficulty in small speedboats. However, after the initiation of joint anti-piracy patrols by the Malaysian, Singaporean, and Indonesian authorities in this vital area, the focus of piracy shifted to the South China Sea. Between 1993 and 1995, more than 50 per cent of attacks recorded for Southeast Asia took place in the South China Sea. Particularly affected were the territorial waters of Hong Kong and Macau and the so-called HLH ‘terror-triangle’, encompassing the waters between Hong Kong, Luzon in the Philippines, and the Chinese island of Hainan. Some observers believe that the spate of attacks were officially sanctioned by the Chinese authorities, while others suggest that only a few corrupt elements of the southern Chinese bureaucracy and navy were involved. However, since the mid-1990s, as the Soeharto regime unravelled, Indonesian ports and territorial waters are identified as the most pirate-prone in Southeast Asia. The geographic features of Indonesia and its sheer size make effective anti-piracy patrols a difficult task at the best of times and particularly so in the aftermath of the economic recession since 1997. Furthermore, as in other parts of the region, pirates can readily slip across borders to escape patrols by the authorities.11

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The PRC reports also indicate that modern day pirates are increasingly prepared to use violence to further their aims, with the number of pirates armed with modern weapons on the rise. Injuries to the crew, assaults, killings, and hostage taking of crew members occur regularly in pirate attacks in the region. An attack, therefore, poses a direct threat to the welfare and lives of seafarers and can be a frightening or even traumatic experience for the victims. At sea, the victims usually have to face the attackers alone and are forced to defend themselves with whatever means available. This is complicated by the fact that modern technology has drastically reduced the number of crew on board commercial vessels, leaving vessels more vulnerable to pirate attacks. The data collected by the PRC demonstrates that piracy is once again flourishing in East and Southeast Asia. In order to understand why piracy reemerged with such a vengeance in the Asian region in the 1990s, and to analyse its distribution and characteristics, one has to look at the factors that shaped modern piracy in the region, particularly in the post-Cold War era. Shaping Modern Day Piracy Piracy is not a new phenomenon in Southeast Asia and many observers point to an age-old ‘culture of piracy’ to explain its modern day manifestation in the region. However, what is referred to as piracy in the past performed a structurally different role in global and local interactions than contemporary piracy. Many of those labelled ‘pirates’ in Southeast Asian waters in the past — a label assigned to them by Western colonial powers — were involved in slave raiding or other activities, which were conducted to strengthen chiefdoms or sultanates (while at the same time enriching the sponsors of such raids).12 These state-sponsored — or at least tolerated — activities were very different from modern piracy, which is largely conducted for private ends. In fact, modern day piracy is more likely to have an adverse effect on state power, weakening state control and contributing to the loss of state sovereignty. Therefore, I believe that one has to look to more recent developments to explain the phenomenon of modern day piracy. A number of major developments in the 1990s were conducive to the rise of modern day piracy. Among those developments, three are of particular importance: (1) accelerating globalization and the intensification of the global economy, (2) the end of the Cold War, and (3) technological advances. First, increased globalization and the intensification of the global economy brought about many changes in Southeast Asia in the post-Cold War era. These include the transformation of polities and economies, with a rise in commercial maritime traffic, providing a ready supply of potential targets for pirates. 13 Furthermore, while many people benefited from economic developments in the 1990s, others were left behind in the boom, resulting in an ever-widening gap between the haves and have nots. For some of the more desperate of those left behind, a pirate attack can be an alternative source of income to feed a hungry family. Since the 1997 economic crisis, poverty,

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unemployment, and uncertainty spread even more widely in Southeast Asia, and more people were forced to seek alternative sources of livelihood and income. Moreover, as a result of the financial crisis, various states in the region had less capital available to finance military and naval operations, including effective anti-piracy patrols in their territorial waters. With less capital available to them, corruption among officials also increased and many undoubtedly accepted bribes from pirates in exchange for their co-operation. These developments also led to a further decline in the ability of some states to maintain a certain level of ‘law and order’ in particular areas in the region. Batam, an Indonesian island just off the coast of Singapore, is one example. Hopes were once high that the small island could develop into a place of economic prosperity, based on tourism and intensive industrial development. Lured in by rumours of a booming economy, migrants from all parts of Indonesia arrived on the island in the wake of the economic crisis. As the economic opportunities they had hoped for did not emerge, many migrants ended up in squatter communities around the island. Today, the island is a place where golf courses and resorts co-exist with squatter communities, factories, and thriving brothels. The island is in fact known for the ready availability of inexpensive sex and drugs, and is a hot spot for smuggling goods and people. In his work on Batam, Johann Lindquist characterizes the island as a place that changed too fast in recent years and now enjoys a certain level of lawlessness — a place with a distinct frontier-town atmosphere.14 It is therefore not surprising that Batam is also known as a latter-day pirate base, with various pirate gangs operating from the island.15 Second, with end of the Cold War a new world order emerged. As a result, Southeast Asia saw a sharp reduction in the number of superpower naval vessels patrolling Asian sea-lanes, leaving stretches of international and territorial waters without regular patrols.16 Moreover, with the collapse of the Soviet Union and the end of the Soviet and American supported proxy wars in Asia, Africa, and Latin America, the international arms markets suddenly became saturated with automatic weapons. Light arms from the Soviet Union, Cambodia, China, and Afghanistan have been sold at relatively low prices in countries such as Myanmar, Indonesia, and the Philippines and are readily available to drug lords, terrorists, crime syndicates and pirates alike.17 Third, advanced technology has had an immense impact on modern day piracy, with pirates today using modern weaponry and speedboats for their operations. Furthermore, advanced communication technology has enabled pirate gangs and other crime syndicates to network, plan, and execute regional operations, as ideas and vast sums of money can now be transmitted rapidly from one country to another. Particularly, organized crime syndicates have benefited from these developments. The rise of powerful global and regional crime syndicates in recent years and their ability to adapt to the modern world and refine their criminal methods has shattered the theory that economic development, technological advances, and modernization will automatically

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cause the disappearance of organized crime. Moreover, an important statement made by Judge Giovanni Falcone in regard to the transformation of the Cosa Nostra may shed some light on the nature of operations of crime syndicates in Asia in the last two decades. Falcone argues that the spread of mass consumerism has “changed the entire social context (in Italy) and thus has also changed the Cosa Nostra, whose evolution develops in parallel with it”. Falcone believes that as a result of the spread of consumer capitalism the Cosa Nostra became ever more ruthless and money oriented.18 Asian crime syndicates, operating in a similar environment, may have also undergone a similar transformation. Large-scale operations, which promise huge profits, by organized crime gangs and pirate syndicates may in fact be a direct response to the spread of capitalism and materialism in the region. These developments taking place in the early 1990s influenced and shaped modern day piracy in East and Southeast Asia. As a result, two different types of pirates emerged — opportunistic sea-robbers and sophisticated organized pirate gangs. Contemporary Pirates ‘Common Sea-Robbers’ and ‘Social Pirates’ The vast majority of pirate attacks today are simple hit-and-run robberies, committed by what can best be described as common sea-robbers. The perpetrators of these attacks operate in small groups who have most likely known each other for some time.19 These sea-robbers attack ships at sea, at anchorage or in ports and most likely do not share their booty with anyone outside the pirate gang with the possible exception of bribe money paid to outsiders to ensure their silence or co-operation. The attacks often last no longer than 15 to 30 minutes, and require a minimum level of organization and planning. Two different kinds of hit-and-run attacks can be identified in East and Southeast Asia, primarily distinguished by the level of violence involved in the attacks and the type of vessel attacked. It is, however, important to stress that the boundaries between these two kinds of attacks are blurred and that some perpetrators may fit into either category at certain points in time as they change their modus operandi. The first type of hit-and-run attacks is often referred to as ‘Asian piracy’ and, with few exceptions, takes place in territorial waters. The sea-robbers in this scenario skilfully slip aboard a ship, mostly under cover of darkness, and take anything of value before leaving the vessel. In some instances such an attack is only discovered when the ship’s equipment and crew’s belongings are found missing after the pirates have left the vessel. The booty stolen in these attacks may include cash, radios, VCRs, or even tins of paint or ropes. Violence in these cases is mostly limited to occasions in which the perpetrators’ route of escape is blocked or when they are confronted or threatened in any other way.20

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The second type of hit-and-run attacks is more violent in nature. The pirates in these cases attack small vessels, including yachts and other small pleasure craft. A number of holidaymakers in the Asian region have in recent years experienced such attacks. While some of these assaults are simple hitand-run robberies while a yacht is left unattended, others involve a high level of violence as the pirates confront the crew on-board directly.21 The vast majority of attacks targeting small craft, however, involve fishermen, either as victims or as perpetrators. Fishing boats and their crews are arguably most affected by contemporary piracy, even though most of these attacks are not reported, either out of ignorance or of fear of revenge by the pirates.22 The perpetrators in these attacks are in most cases heavily armed, carrying semi-automatic rifles or similar weapons, though the level of violence and armaments of the pirates vary from region to region depending on local conditions. The following account by a Vietnamese fisher demonstrates some characteristics of such an encounter: “We were setting our nets off the Ca Mau peninsula (at the southern tip of Vietnam), (when) (s)uddenly two high-speed vessels raced towards us. Masked assailants carrying guns jumped onto our fishing boat and threatened us with their guns. They ordered us to jump overboard and abandon the boat.” As the owner tried to resist, he was shot and killed by the pirates. The perpetrators then attempted to restart the vessel’s engine, but fled after they failed to do so. The frightened crew was later rescued by a passing fishing boat.23

A second example from the southern Philippines demonstrates that such attacks can also be extremely violent, in cases where the pirates show no interest in the fishing boat itself. In this incident three fishermen were shot dead in the strait between Basilan and Zamboanga province, as pirates in a motor boat and armed with rifles approached their boat and opened fire, killing the fishermen. The pirates then took the fishing boat’s engine and fishing gear and fled. Other fishermen working nearby heard the shots, but were too afraid to approach the scene of the crime and the victims’ bodies were only later discovered by policemen.24 These attacks are without doubt extremely traumatic for the surviving fishermen. While not all such attacks result in the death of a crew member, the level of violence is still high, as the pirates have to confront the crew directly. Furthermore, the sea-robbers often destroy the fishermen’s livelihood by taking their fishing boats, their equipment, or catch. Additionally, hostage taking has become a frequent occurrence in some areas, especially the southern Philippines, and ransom demands for the return of seized equipment, vessels, or crew members are a further burden for the victims. In other cases, fishermen themselves are the perpetrators. Fishermen throughout Asia have to struggle increasingly with depleted marine resources and higher oil prices and often find themselves in competition with large

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technologically advanced foreign trawlers. To supplement their income, some fishers reportedly resort to attacks on other fishing boats or other passing vessels. A high level of violence is once again characteristic of such attacks, as the target vessels are often small or medium-sized. In addition to these two types of hit-and-run robberies at sea, a distinct type of pirate — the ‘social pirate’ — may be worth discussing briefly. Until today, many people still maintain a romantic view of pirates and their activities, perceiving them as simply adventurers or social — Robin Hood type — bandits of the sea. While the reality often seems rather different, Eric Hobsbawm’s discussion of social banditry may be useful to shed some light on the activities of certain groups of modern pirates — and certain aspects of modern piracy — in Southeast Asia. Hobsbawm’s analysis of social bandits25 focuses on peasant outlaws “whom the lord and state regard as criminals, but who remain within peasant society, and are considered by their people as heroes, as champions, avengers, fighters for justice, perhaps even leaders of liberation, and in any case as men to be admired, helped and supported”. Social bandits always rob or attack people outside their own community, with the Robin Hood type (at least in theory) robbing the rich to give to the poor. Hobsbawm points out that social banditry emerged in agricultural areas ruled and oppressed by “someone else” and often in times of economic crisis. Hobsbawm further stresses that mass social banditry only flourished where the structure of (central) state power was weak, unstable, or absent.26 Social bandits are, for obvious reasons, in many aspects very different from modern pirates, and any comparison must consequently take account of this very important fact. However, by discussing two examples of modern day piracy, I will attempt to show that a certain type of pirate in Southeast Asia may in fact share some crucial characteristics with Hobsbawm’s social bandits. The first example is based on recent reports from various parts of Indonesia. These reports state that ‘whole villages’ predominately on remote islands, occasionally gang up and attack vessels for food, cigarettes, and other small goods. Rising poverty, especially since the 1997 Asian financial crisis and the relentless depletion of fish stocks in the region are mainly blamed for such activities. For the inhabitants of such impoverished places, passing vessels are tempting targets as some of these ships can feed a ‘whole village’. The attack itself, however, is most likely planned and conducted by a small number of able-bodied men from the community, not the ‘whole village’ as such. However, the ‘whole village’ may share the booty, benefit from the attack, and admire and support the perpetrators.27 The second example comes from urban Manila, where in 1992, the journalist Michael Bociurkwic, was able to interview Renee, a local pirate. At the time of the interview, Renee was thirty-three years old with a family of four and had been engaged in pirate activity for some five years. He revealed that he and his gang plunder ships in Manila Bay three or four times a month, taking cash, cigarettes, small engines, and cargo. The targets are, according to

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Renee, selected by his “very rich” boss, who remains anonymous. Renee told the journalist that they are well armed when they launch an attack and do not hesitate to shoot when “there is no way to get out”. “I don’t like the job, but I need it to feed my family”, he added. According to the pirate, a large part of his monthly ‘salary’ of up to 20,000 pesos goes towards his family, neighbours, and the urban poor, in particular the squatters who spend their days searching for scraps around Manila’s notorious Smokey Mountain. “We give money to the poor because it is very difficult for them to survive. They have no hospitals or schools. The government has no time for people like us.”28 The pirates in these examples clearly have certain characteristics in common with the social bandits. Just as in the case of the social bandits, these particular pirates share their booty with the poor are most likely admired by their people and therefore receive help and support from them. Both the Indonesian villagers and the poor on the rubbish tip in urban Manila can be regarded as people governed by someone who, according to Renee, has no time for people like them. Furthermore, those areas may be described as places where state power is comparatively weak. This and the support the pirates receive from their communities make it difficult for the authorities to arrest these pirates. Organized Pirate Gangs The second group of pirates can be characterized by a much higher level of organization and sophistication compared with the hit-and-run sea-robbers. These organized pirate gangs — or syndicates — predominately attack mediumsized vessels, including cargo ships, bulk carriers, and tankers. Favoured cargoes are those that can be shifted and sold easily, ranging from diesel fuel to steel ingots and electronic goods. Organized pirate gangs adapt their own strategic and logistical methods to a rapidly changing world, becoming increasingly sophisticated in the process. Today, the gathering of intelligence and the conduct of surveillance with modern technical equipment are common practice among organized pirates and are used to target selected ships and cargoes. Two different types of pirate attacks by organized gangs can be distinguished, so-called long-term and permanent seizures. Long-term seizures are attacks in which a vessel and its crew are held hostage for a stipulated period of time. In these cases a vessel is attacked whilst underway, the crew overpowered, and the ship diverted from its course. In some cases, the ship is repainted and the name changed by the pirates in order to avoid detection. However, while the crew is held hostage, the ship is brought to a safe location to unload the cargo, after which the crew and the vessel are released.29 An even higher level of organization and sophistication is required for permanent seizures. In these cases the entire vessel is literally hijacked by pirates. One example is the seizure of the Cheung Son discussed earlier. Permanent seizures appear to be a phenomenon particular to the Far East region and, increasingly, Indonesian waters. In the past, many hijacked vessels have been found in southern Chinese ports. Hijacking a vessel is a method

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used by organized crime to acquire a ship, which is then turned into a socalled phantom ship. Pirate syndicates are interested in obtaining a vessel either because they know of shippers eager to find a ship to carry their cargo, or a ship is hijacked on order from a third party. In both cases the vessel’s original cargo is disposed of and the original crew either killed, thrown overboard, or put into life rafts and left to their own device. The ship is then registered under a different name and turned into a phantom ship. Registering a vessel under a false name is surprisingly simple, as temporary registrations are — for a certain price — “issued indiscriminately by officials of some ship registries”. The re-registration of hijacked vessels makes it particularly difficult for authorities to trace them and provides the new owner with official protection “during any legal proceedings that may subsequently take place”. Equipped with its new identity, the vessel is then offered to an anxious shipper to transport his cargo. The cargo, however, will never arrive at its destined port, as the vessel is diverted and the cargo off-loaded in another port and sold to a different consignee. The vessel is then once again re-registered under a new name and the play begins once again.30 These attacks undoubtedly display a high degree of organization and require detailed planning and upfront capital. According to Noel Choong, four major pirate syndicates involved in shipjackings are operating in Southeast Asia at present.31 To operate successfully, pirate syndicates are thought to have links to government agencies or officials, particularly in China and Indonesia. Discussing piracy in China, Bertil Lintner, suggests that: “… while piracy may not be condoned by the Chinese navy as such, the temptation to participate in attacks on foreign ships, or to turn a blind eye to sea-robbery in exchange for bribes or part of the loot, appears to be very strong.”32 Moreover, these kinds of pirate attacks suggest close links between piracy and other illegal activity in the region, which will be discussed in the following section. Pirates, Smugglers, Rebels, and Terrorists Irrespective of the vessel or cargo seized, pirates need a reliable support network at sea and ashore in order to sell the stolen goods and launder the money gained in the operation. In pirate attacks in which the cargo is stolen or the entire ship hijacked, the perpetrators often know in advance what cargo the targeted vessel is carrying. The pirates, or their financiers, choose cargoes that can be sold easily on a ready black market in the region. Cargoes targeted therefore include television sets, steel ingots, or rubber, as well as palm and diesel oil. In the case of a diesel oil tanker targeted and seized, either for a short period or permanently, the oil has to be unloaded, smuggled into the country of destination and eventually sold there. In case of a permanent seizure, forged documents may be used for the hijacked vessel and its cargo, and the oil is then ‘legally’ discharged in a port. In attacks in which tankers are seized for a short period of time only, as well as in some permanent hijacking cases, the oil is discharged at sea into other tankers or fishing vessels adapted to hold

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10,000 to 100,000 litres of oil. The diesel oil is then sold illegally to fishermen, boat operators, or patrol stations. With a high demand for oil in the region, buyers for the cheaper, stolen oil are not difficult to find.33 Furthermore, it is not unlikely that phantom ships are used by organized crime gangs to smuggle arms, drugs, people, fauna, or any other goods. Another significant aspect of modern day piracy is its links to the activities of rebel groups and terrorists operating in Southeast Asia. Newspapers in the region have repeatedly published articles indicating that both the Free Aceh Movement (GAM) in Indonesia and the Abu Sayyaf in the Philippines have been involved in pirate attacks and arms smuggling. The GAM rebels in Aceh are believed to have conducted pirate attacks in recent years in order to finance their struggle against the Indonesian Government. Unlike GAM attacks in which political targets are hit, such as attacks on vessels servicing Exxon Mobile platforms, the GAM is said to have attacked vessels and taken crew members hostage solely to extort money. The boundaries between a pirate attack and a politically motivated act are in this case clearly blurred, as the money from the attack was used to finance the GAM’s politically motivated fight against the Indonesian military forces in Aceh.34 The Abu Sayyaf in the southern Philippines has also repeatedly been associated with pirate activity. There are, however, a large number of armed groups and individuals operating in the southern Philippines — both politically motivated and with pure criminal intent — and to find the real culprits in this maze is often impossible. Furthermore, although some Abu Sayyaf members or splinter groups are most likely involved in criminal activities — including piracy — the overall motivating force behind the group’s major activities is political in nature. These activities include the terrorist acts that have made the Abu Sayyaf notorious, such as the kidnapping of foreign tourists and resort workers from the island of Sipadan, Malaysia, in 2000. The motivation behind the Abu Sayyaf’s operations is crucial, as it is the motive (and consequently the perpetrators’ modus operandi) that distinguishes the terrorist from a modern day pirate, or an ordinary criminal. While the pirate is acting primarily for selfish, personal reasons, the terrorist believes that he is serving a ‘good’ cause designed to achieve a higher good for a wider constituency. The terrorist’s action is designed to have political and social consequences or to create psychological repercussions beyond the sheer act of violence itself. Unlike the pirate, the terrorist aims at conveying a fundamental message — often political or religious — through an act of violence.35 The terrorist, therefore, aims at disrupting society, while criminals, and particularly organized crime syndicates, “may live outside the law, (but) have never been outside society”.36 However, as in the case of the GAM, the boundaries are also blurred in some Abu Sayyaf operations. Ironically, it was the Abu Sayyaf’s attack on Sipadan that prompted the Malaysian Government to significantly step up anti-piracy patrols in East Malaysian waters.

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Conclusion At the beginning of the twenty-first century, maritime piracy in Southeast Asia has once again become a problem of national and international concern. Despite the fact that the number of attacks may appear rather low compared with the vast number of vessels passing through Asian shipping lanes, piratical activity has serious implications, not only for crews and shippers directly affected by attacks. Dangers posed by contemporary piracy include threats to trade, national security, and the environment in the region. A further increase in attacks may, for example, have an adverse impact on regional trade, especially in areas, or certain ports, associated with pirate activity. Furthermore, some piratical activity is linked to smuggling and other illegal activities, and sophisticated syndicates or organized pirate gangs are today increasingly involved in piracy. Those illegal activities and the rise of organized crime in Asia unquestionably pose a threat to the security of all countries in the region. Moreover, acts of piracy also have the potential to cause excessive environmental damage, as pirates are known to tie up the crew or throw them overboard, leaving the attacked vessel to drift without control. Given the increased danger of a mid-sea collision, such an incident can have dire consequences, particularly in the crowded Asian sea-lanes. The worst-case scenario is a collision or crash, involving a large oil tanker.37 Such an incident would have devastating consequences for the marine life as well as for coastal areas and its inhabitants. The sinking of the tanker Prestige off the coast of Spain in November 2002, served as a recent reminder of the devastating consequences of a major oil spill, particularly in a densely populated area.38 However, there are indications that piracy and other non-traditional security issues, such as illegal immigration and illegal fishing, are more widely discussed today then in the past. Until the late 1980s, communism had been identified as the pre-eminent security threat, which allowed many non-traditional security issues to be sidelined. After the collapse of the Soviet Union, however, the focus shifted, and piracy and other related issues receive more attention from governments and security experts. This international redefinition of security may increase the chances of finding effective ways of addressing the problem of modern day piracy.39 To find satisfactory solutions, however, is not an easy task. As discussed above, modern day piracy is a complex phenomenon, encompassing various kinds of pirates and piratical activities, caused and reinforced by a number of social, political, and economic factors. A variety of approaches are therefore necessary to address the problem. While there have been responses to modern day piracy, further efforts by the shipping industry, international institutions and regional governments are required. It has been suggested that the shipping industr y and international institutions could further raise awareness of the problem, encourage the reporting of pirate attacks to the IMB or other institutions, and promote programmes to improve security on board commercial vessels. According to the IMB, security on board can be improved by, for example,

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installing Secure-Ship — a 9,000 volt, non-lethal, electrifying fence surrounding the ship to deter boarding attempts — or by using Shiploc, a satellite tracking system designed to locate vessels at sea or in port.40 Initiatives by governments should not only include increased patrols and improved coastal surveillance systems but also socio-economic and political measures to address the root causes of modern day piracy, which include poverty, dislocation, uncertainty, and corruption.41 Given the nature of modern day piracy, further regional and international co-operation is necessary to cope with the problem.42 Regional co-operation is in fact crucial as modern day piracy is a regional phenomenon, linking squatters on the rubbish tip in urban Manila and villagers on a remote island in Indonesia to wealthy businessmen and crime syndicates in Asian capitals.

NOTES 1. In the Chinese legal system, ‘piracy’ is not defined as such, but certain crimes, especially those that endanger public security, are related to piracy, and acts of piracy can be punished under those laws. See Zou Keyuan, “Piracy at Sea and China’s Response”, EAI Background Brief no. 55 (Singapore: East Asian Institute, 2000). 2. Information on the Cheung Son hijacking is based on a number of newspaper articles, particularly articles from the South China Morning Post and the Straits Times. 3. The article is based on material widely available. Primary research on the subject of contemporary piracy has thus far been rather limited and more in-depth research is required to fully understand modern day piracy in all its manifest forms and complexity. 4. James Francis Warren, “A Tale of Two Centuries: The Globalisation of Maritime Raiding and Piracy in Southeast Asia at the End of the Eighteenth and Twentieth Centuries”, Paper presented at KITLV Jubilee Workshop, Leiden, 14–16 June 2001, pp. 13–17. 5. There are a number of other organizations and institutions concerned with piracy, such as the International Maritime Organization (IMO), which cannot be discussed in this article. 6. Zou Keyuan, “Enforcing the Law of Piracy in the South China Sea”, EAI Background Brief no. 19 (Singapore: East Asian Institute, 1998), p. 13. 7. ICC International Maritime Bureau, “Piracy and Armed Robbery against Ships. A Special Report. Revised edition — March 1998” (Barking, U.K.: International Chamber of Commerce IMB, 1998), p. 2. 8. ICC International Maritime Bureau, “Piracy and Armed Robbery against Ships. Report for the Period 1 January–30 September 2002” (Barking, U.K.: International Chamber of Commerce IMB, 2002), p. 5. 9. Author’s interview with Noel Choong on 23 October 2002. 10. “Piracy in Southeast Asia”, CSS Strategic Briefing Papers vol. 3, part 2, Centre for Strategic Studies, June 2000. 11. Peter Chalk, Non-Military Security and Global Order (New York: St. Martin’s Press, 2000), pp. 68–71. 12. See James Francis Warren, The Sulu Zone 1768–1898: The Dynamics of External Trade, Slavery, and Ethnicity in the Transformation of a Southeast Asian Maritime State (Singapore: Singapore University Press, 1981). James Francis Warren, Iranun and

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13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

23. 24. 25.

26. 27.

28.

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Balangingi: Globalisation, Maritime Raiding and the Birth of Ethnicity (Singapore: Singapore University Press, 2002). Carl Trocki, Prince of Pirates: The Temenggongs and the Development of Johor and Singapore, 1784–1885 (Singapore: Singapore University Press, 1979). Chalk, Non-Military Security, p. 60. Johann Lindquist, “The Anxieties of Mobility. Development, Migration, and Tourism in the Indonesian Borderlands” (Ph.D. dissertation, Department of Social Anthropology, Stockholm University, 2002), pp. 10–13. See Jon Vagg, “Rough Seas? Contemporary Piracy in South East Asia. (Riau Archipelago, Indonesia)”, British Journal of Criminology 35, no. 1 (1995): 63–80. Chalk, Non-Military Security, p. 60. The trade in light arms has enormous impact on the countries involved, affecting political stability and the economy. See Peter Chalk, “Light Arms Trading in Southeast Asia”, Jane’s Intelligence Review, March 2002, pp. 42–45. Giovanni Falcone with Marcelle Padovani, Men of Honour. The Truth about the Mafia (London: Warner Books, 1992), p. 118. This is not necessarily the case in regard to perpetrators involved in major attacks, where a group of people have in some cases been hired to attack a vessel who did not ‘work’ together or know each other prior to the attack. ICC International Maritime Bureau. “Piracy and Armed Robbery against Ships. A Special Report. Revised Edition — March 1998”, pp. 3, 7. Reports of lost yacht equipment, hijacked yachts, injury or even death of yacht owners and their crew appear from time to time in newspapers or other reports. A systematic data collection, however, does not exist to my knowledge. It is therefore impossible to determine the exact number of such attacks. However, some idea of the extent of the problem can be gained from various (newspaper) reports. Vietnamese officials, for example, recorded 68 encounters with pirates involving some 120 fishing vessels in the first nine months of 2001. See Tran Dinh Thanh Lam. “Vietnam: Wave of Piracy Terrifies Local Fishermen”, Inter Press Service, 24 October 2001. Another report from the southern Philippines recounts that in Patalon, a small village of 200 subsistence fishermen and their families, about 50 have lost their boats or engines to pirates. See Indira A.R. Lakshmanan, “Sidebar Rich, Poor Targeted by Modern Buccaneers”, Boston Globe, 3 September 2000. Tran, “Vietnam: Wave of Piracy”. “Pirates Rob, Shoot to Death Three Fishermen off Southern Philippine Province”, Associated Press Newswire, 12 April 1999. Hobsbawm distinguished between three different types of social bandit, the “noble robber” (Robin Hood type), the “terror bringing avenger”, and the “haiduk”, the primitive resistance fighter. For the purpose of this article, however, the “noble robber” is of primary interest. Eric Hobsbawm, Bandits (London: Abacus, 2001), p. 23. Ibid., pp. 14–20. Sethuraman Dinakar and Harry Maurer, “The Jolly Roger Flies High … as Piracy Feeds the Hungry”, Business Week (Internatioal Edition), 24 May 1999. There are a number of articles in East and Southeast Asian newspapers (as well as some international newspapers), mentioning attacks organized by ‘whole villages’. However, there are other types of pirates who also give a proportion of their booty to their local community, but only in order to ensure the villagers’ silence or co-operation. See Robert Stuart, In Search of Pirates: A Modern Day Odyssey in the South China Sea (Edinburgh: Mainstream Publishing (Edinburgh) Ltd, 2002), pp. 218–20. Michael Bociurkwic, “Pirate Says He Plunders to Feed His Family”, South China Morning Post, 2 May 1993.

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29. ICC International Maritime Bureau. “Piracy and Armed Robbery against Ships. A Special Report. Revised Edition — March 1998”, pp. 35–36. 30. Ibid., pp. 32–35. 31. Author’s interview with Noel Choong on 23 October 2002. 32. Bertil Lintner, Blood Brothers: Crime, Business and Politics in Asia (Crows Nest, NSW, Australia: Allen and Unwin, 2002), p. 10. 33. Robert S. Redmond, “The Modern Pirate”, Contemporary Review 266, no. 1553 (1995): 292–97; Zou Keyuan, “Piracy at Sea and China’s Response”. See also Pasuk Phongpaichit, Sungsidh Piriyarangsan, and Nualnoi Treerat, Guns, Girls, Gambling, Ganja: Thailand’s Illegal Economy and Public Policy (Chiang Mai: Silkworm Books, 1998), pp. 113–20. 34. See, for example, Stuart Mcmillan, “Japan Should Continue Role in Anti-Piracy Steps”, Asahi Shimbun. Asia Network, 4 May 2002; available online at . See also Tay Ninh, “Piracy a Concern in Malacca Strait”, , accessed on 20 October 2001. 35. For a discussion of the differences between terrorists, ordinary criminals and insane assassins, see Bruce Hoffman, Inside Terrorism (London: 1998), pp. 41–43. 36. Lintner, Blood Brothers, p. 10. 37. Chalk, Non-Military Security, p. 67. 38. The most devastating incident before the Prestige disaster was arguably the ecological and environmental damage caused by the Exxon Valdez in Alaska in 1989. However, the Prestige disaster may prove more devastating, as the incident occurred in an area more densely populated. Moreover, if all the oil on the Prestige finds its way into the ocean (some of it is still locked inside the vessel at the time of writing) the amount of oil discharged will be double of that lost by the Exxon Valdez. See “Öltanker komplett gesunken”, MSN News, 20 November 2001; available online at . 39. N. Ganesan, “Illegal Fishing and Illegal Immigration in Thailand’s Bilateral Relations with Malaysia and Myanmar”, in Non-Traditional Security Issues in Southeast Asia, edited by Andrew T.H. Tan and J.D. Kenneth Boutin (Singapore: Select Publishing, 2001), pp. 307–8. 40. ICC International Maritime Bureau “Piracy and Armed Robbery against Ships. Report for the Period 1 January–30 September 2002”, p. 19. For further details, see and . 41. See “Future Challenges for Southeast Asian Nations in Maritime Security”, at , accessed on 18 September 2002; Mak Joon Num, “Incidents at Sea: Shipjacking, Maritime Muggings, Thefts and Illegal Migration in Southeast Asia”, Paper presented at the Intercargo Roundtable Discussion on Piracy, Singapore, 4 February 2002. 42. This is not an easy task as Abbot and Renwick point out, because piracy raises complex issues of sovereignty and jurisdiction. See Jason Abbot and Neil Renwick, “Pirates? Maritime Piracy and Social Security in Southeast Asia”, Pacifica Review: Peace Security & Global Change 11, no. 1 (February 1999): 15.

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BRUNEI DARUSSALAM

Southeast Asian Affairs 2003, pp. 71–79

NEGARA BRUNEI DARUSSALAM Socio-Economic Concerns Amid Stability and Plenty

Hamzah Sulaiman

Introduction The year 2002 was a mixed one for Brunei. Politically, it was an uneventful year with a minor change in the Cabinet line-up. The economy was sluggish despite the government’s efforts to stimulate growth. The international and military front had a busy schedule. Socially, negative symptoms of a coddled society were beginning to show up. A Coddled Society and Its Social Problems Without a doubt, Bruneians are well-pampered people as a result of extensive welfare services and programmes initiated in the 1950s by the monarchy and funded by the wealth derived from oil and gas. Brunei has welfare programmes from the cradle to the grave. Most Bruneians enjoy the good life without having to pay income tax. They also enjoy the guarantee of government jobs as well as free education and health care. According to the United Nations Development Programme (UNDP), Brunei was ranked thirty-sixth in its Human Development Index in 2002 and it was the highest ranked country in Southeast Asia. Education Education is free for Bruneians from primary up to secondary level. From 2003, it will be extended to the permanent residents of Brunei. Nonetheless, this generous provision of education has not been fully taken advantage of by Bruneians, as can be seen from the disappointing results of national public examinations at the primary and secondary levels. The Deputy Minister for Education pointed this out when he remarked that the results at these two levels “have yet to achieve satisfactory level”.1 About half of the candidates at the lower secondary public examination and at the “O” levels failed their examinations. At the tertiary level, about 200 students were shocked to find their applications to study at the local university, Universiti Brunei Darussalam, rejected even after fulfilling the university’s entry requirement. This was due HAMZAH SULAIMAN is the Head of the Department of Public Policy and Administration, Universiti Brunei Darussalam. . Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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to the introduction of a new quota system on university admissions by the Ministry of Education in order to alleviate the graduate unemployment problem in Brunei. This sudden change in policy caused an uproar among the parents of affected students as the new policy was implemented without (much) public consultation. To settle the matter, the university, under the instruction of the Ministry of Education, subsequently admitted all the 200 students under a new tertiary scholarship policy. According to this new policy, full scholarships will only be given to students who had achieved excellent results at the “A” level examination. Those who met entry requirements but with less than excellent results would only get partial scholarships. Thus the ministry in effect introduced a system of full and partial scholarships for study at the local university. Previously, any Bruneian who was eligible to study at the local university would be given a full scholarship. Under the partial scholarship scheme a Bruneian student would not receive a monthly allowance and an annual book allowance. The student would, however, be exempted from paying tuition fees. Only noncitizens and citizens who did not pass the Malay Language at “O” levels would have to pay tuition fees. Land In 2002, 734 people received keys and land titles from the monarch through the National Housing Scheme. This housing scheme provides low-cost houses and land plots for landless Bruneians. In the same year, the government of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam also provided monthly old-age pension (for those above 60 years old) to about 14,577 Bruneians. Health Issues Heart diseases, cancer, and diabetes were the top three killers of Bruneians in 2002. The government campaigned for healthy living and encouraged people to exercise. Monthly walkathons were organized by government ministries to drive the message to the people, especially to the small but precious workforce. A new private medical centre for heart diseases was also opened at the Gleneagles Jerudong Park Medical Centre. HIV cases were also given special attention on World AIDS Day. To date, twenty-two Bruneians had been infected by the HIV virus and 73 per cent of them were male.2 Twelve had died. Drugs and Crime The narcotics problem continued to plague Bruneian society. Latest statistics showed that 547 people were arrested for drug-related activities in 2001,3 84 per cent of them Bruneians. The issue received special attention from His Majesty when he visited the Narcotics Control Bureau twice in 2002. In an effort to deter Bruneians from indulging in drug-related activities, the government of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam has tightened the Drug Trafficking Act. The government enacted

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the death penalty for trafficking more than 50 grammes of methyl amphetamine or syabu. Previously, the death penalty would only be applied to cases involving more than 200 grammes of syabu. Crime was also on the increase. Latest statistics showed that in 2001 there was an increase of 11 per cent or 287 criminal cases from the previous year. The total number of criminal cases was 2,903. There were also 350 bankruptcy cases in 2001, an increase of about 24 cases from the previous year. The frequency of theft and fraud cases received increased coverage in the media. Car theft was the most common crime committed in Brunei. In the first seven months of 2002, about 147 cars were stolen. Fraud cases involving pyramid schemes, unpaid foreign workers, and phantom umrah flights received heavy media coverage. The steady increase in crimes in recent years was evident from the overcrowding of the Jerudong Prison. The government of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam built a new prison in Malburong to which about one hundred prisoners serving light sentences and those below 30 years old were transferred. Another prison will be built at Kupang in the near future. There is yet to be a prison for juvenile offenders, and some members of the court and media have in recent years been calling for the establishment of a juvenile prison and court system. The Sluggish Economy The economy grew by only about 1.5 per cent in 2001. This was due to the prudent fiscal policy of His Majesty’s Government. The financial effects of the Amedeo episode and the 1997 Asian financial crisis were still being felt in many sectors. His Majesty’s government was still in the process of beefing up Brunei’s depleted foreign reserves and staying on a prudent fiscal course. Basically, this was an exercise in cutting government expenditure. Brunei’s economy is still largely government-driven and dependent on the oil and gas sectors, which contributed about 39 per cent of the gross domestic product (GDP).4 A growth of 4 per cent was projected for 2002. This prediction was based on a number of government-led economic initiatives that were planned for implementation in 2002. A B$1 billion development fund was allocated for 2002 as a part of the Eighth National Development Plan (NDP). The Eighth NDP plan laid out the next five-year development plan of His Majesty’s government. The public utilities sector received the highest allocation of about B$256 million or about 26 per cent of the total development budget.5 However, the business community was a bit sceptical regarding the ability of the government bureaucracy to disburse all of the B$1 billion allocated fund. This perception was based on the fact that in past years the government bureaucracy was only able to spend about 55 to 60 per cent of the allocated funds for national development plans.6 By June 2002, only B$194 million was actually spent on approved development projects.7

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The next phase of the Short-Term Economic Recovery Plan (initiated in 2000) released about B$100 million to help revive small and medium enterprises (SMEs) in Brunei. B$31 million was allocated for building maintenance works and another B$30 million to top up the Working Capital Credit Fund.8 This fund was set up to help SMEs to get financial loans for their existing or budding business initiatives. The government’s efforts to diversify the economy got a timely boost in 2001 with the reconstitution of the Brunei Economic Development Board (BEDB). It was tasked to promote Brunei as an investment destination to develop and to stimulate the economy. In what was considered to be a positive move, His Majesty’s government appointed Mr John Perry, a former managing director of an oil company, as the Chief Executive Officer of the BEDB.9 Mr Perry has a formidable task to perform in the coming years since a recent U.N. study confirmed that Brunei was ranked 128th out of 140 nations in terms of its ability to attract foreign investment.10 In another effort to raise capital and investment for companies in Brunei, His Majesty’s government, through its Brunei International Financial Centre (BIFC), had set up its first securities exchange called the International Brunei Exchange (IBX) in 2002.11 His Majesty’s government had given an exclusive licence to Nesdex, a small Singapore-based company, to operate the IBX that came online in the third quarter of 2002. The IBX would cater to both local Bruneian companies and regional companies. It is the first pan-Asian exchange where companies and investors from across Asia would be able to participate electronically without having to be physically present in Brunei. The formation of the IBX may also facilitate the government’s efforts to corporatize some of its departments in the future. The Department of Telecom was planned for corporatization in April 2003 and will be named Telekom Brunei Berhad. A number of government departments were also slated for such efforts including the Housing Department, Department of Electrical Ser vices, Postal Ser vice Department, Vehicle Inspection Centre, Port Department, and Brunei International Airport. Corporatization is a government policy to reduce state expenditure and administration as well as to meet the demand for a better quality of service to the public. It is also a way to build and strengthen the private sector of the Bruneian economy. Royal Brunei Airline (RBA), an existing corporatized entity, had a management shake-up in a move to turn the national carrier into a profitmaking organization. A new chief executive officer was appointed and a number of senior managers were removed to make way for a new management team. The Deputy Chairman of RBA Board of Directors commented that the company “cannot continuously hope and rely on the government to inject funds to rescue the airline”.12 This exercise of making an existing corporatized entity profitable is part of the overall government plan to strengthen the private sector which is expected to absorb the annual manpower output.

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Another new government-owned oil company, the Brunei National Petroleum Company or Petroleum Brunei, was established by His Majesty’s government. This company would look after all of the Brunei government’s assets in the existing joint ventures with various oil and gas companies. It would also be taking up dual roles as a regulatory body of the oil and gas sector and as a commercial entity.13 The establishment of this commercial entity would also enable His Majesty’s government to implement the Production Sharing Contract as a model agreement for future exploration and production of oil and gas in Brunei. Economic diversification, the perennial objective of successive NDPs since 1950, remained elusive. The need for economic diversification was more apparent in 2001 as the unemployment rate reached 4.7 per cent or about 7,200 people. This is an incredible statistic when one takes into account the 60,000 foreign workers in Brunei. Graduate unemployment became more acute in 2002 as the local university produced another 1,001 graduates in the face of a shrinking job market. The government had earmarked about B$3 million for retraining programmes for 800 diplomas holders in 2002. It had also engaged a foreign consultant firm to come up with a national policy and plan for human resource development. This aims to correct the mismatch between the education and training of Bruneians and the labour demand of Brunei’s private sector. Despite the economic slowdown, two sectors of the economy enjoyed considerable growth. The car sector was very vibrant in 2002 after the cutting of import duty from 200 per cent to 20 per cent. In the first seven months of the year, about 6,324 vehicles were sold with an average of about 30 vehicles per day. This was a major boost from previous years when only about five vehicles were sold daily. The other sector that showed steady growth was the textile industry. In 2001, this sector exported about B$250 million of garments mainly to the United States, the European Union, and Canada. In 2002, it was projected that it would surpass B$300 million in export earnings. However, His Majesty’s government did warn that the sector could face stiff competition in the near future with the entry of China into the World Trade Organization (WTO) and with the proposed China-ASEAN free trade agreement in ten years’ time. Overall, the economy was sluggish. In large part, it was held hostage to the incapacity of the government to dispense the B$200 million worth of ShortTerm Economic Recovery Plan and the B$1 billion development budget. The Enduring Political Supremacy of the Monarchy The absolute monarchical regime remains unchallenged on the domestic political scene. This can be attributed to its ability to sustain welfarism during the years of economic slowdown, the absence of effective political parties to provide an alternative government, and also the success of its coercive agencies in nipping potential political problems in the bud.

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The Cabinet saw two new appointments in 2002 — to the portfolios of Health and Development. Pehin Dato Haji Abu Bakar bin Haji Apong and Dato Seri Paduka Dr Haji Ahmad bin Haji Jumat filled these positions in May 2002 respectively.14 Overall, the composition of the Cabinet has been very stable over the years since its last enlargement in 1986. It only experienced the removal of three ministers in the last ten years. Critics had questioned the ability of the entrenched Cabinet members to lead the country into the new millennium. This criticism was levelled against the Cabinet as a whole because of its perceived failure to diversify the economy in the last two decades. Sceptics were puzzled as to why the Cabinet had not received the same treatment as the top management of RBA where there was a major reshuffle to keep the airline afloat. Two new deputy ministers each were appointed to the Ministry of Home Affairs and the Ministry of Education — Dato Paduka Haji Adnan bin Begawan Pehin and Dato Haji Mohd Yusof to Home Affairs, and Dato Paduka Haji Suyoi and Haji Osman to Education. They took up their appointments in August 2002. At the Ninth Public Service Day celebration, the Crown Prince, Pengiran Muda Al Mutadee Billah, urged the public service to improve itself by intensifying innovation and productivity. He also mentioned that His Majesty’s government was committed to improving the infrastructure and facilities of the public service especially with regard to information and communications technology (ICT). This was in line with the aim of His Majesty’s government to implement a fully developed e-government by 2005. Brunei had been categorized as having minimal “e-government” capacity and was ranked sixtyfourth by the United Nations Report in this area. A new State Judiciary Department was created under the Prime Minister’s Office to take over the administrative and financial affairs of the Civil and Syariah Courts in May 2002. The Chief Justice, in his speech at the opening of the legal year for 2002, called for the establishment of a Law Society to regulate and administer the members of the legal profession in Brunei. He also called for the removal of the Government’s immunity from being sued in negligence cases in order to make the country more attractive to investors who had doubts over the legal environment after a high-profile corruption case (a remnant of the Amedeo scandal) ended with a discharge not amounting to an acquittal. Haji Awang bin Kassim, the Confidential Secretary of the former Minister of Finance HRH Prince Jefri Bolkiah, was released from custody, thus finally closing the Amedeo scandal. The Syariah Courts lost an influential and well-known member in 2002 with the passing away of Dato Professor Dr Mahmud Saedon bin Othman. He was the Islamic Legal Specialist at the Ministry of Religious Affairs and the main proponent of the gradual re-introduction of syariah laws as the main law of the land. On a positive note, the development of the Syariah Courts did receive a boost with the appointment of a Syarie Judge, two permanent panel Judges of the Syariah Appeal Court, and three Syariah High Court Judges.15

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The first batch of thirty lawyers received their certificates after completing a two-year programme in syariah legislation at the local university. This marked the beginning of the realization of the goal to fully implement syariah laws in Brunei. The print media sector in Brunei suffered a blow when one fledgling English newspaper, News Express, had to stop printing when its owner, Avesta Printing Company, was declared bankrupt.16 For those who cherish a plurality of views on the local news, this winding-up signalled a sad end to that endeavour. This leaves Bruneians with only one English daily, the Borneo Bulletin, which is owned by a member of the royal family. The surprising thing about this episode was that there was no new contender for News Express. It has been proven that there is space for another English daily in Brunei’s print media market. One of the two existing political parties in Brunei, Parti Perpaduan Kebangsaan Brunei (PPKB), also suffered a setback when its Deputy President resigned and opted out of party membership. The reason for the resignation of Haji Osman bin Haji Omar was to enable him to concentrate fully on his business activities. The political parties in Brunei have remained on the fringe of the political system of Brunei ever since the suspension of the Legislative Council in 1970. Their relevance had been questioned by the populace as their activities were limited and inconspicuous. In 2002, however, the PPKB did try to garner support from the Muslim public in its call to boycott American, British, and Australian products in protest over the Western interference in the internal affairs of Muslim countries. It must be said that such calls did not receive much support or publicity. The PPKB also sent a letter of protest to the American embassy expressing the party’s dissatisfaction over the way the American Government handled the Palestinian issue.17 The PPKB urged the American Government to be more sympathetic to the plight of the Palestinians. Energetic Foreign and Military Relations In 2002, Brunei established diplomatic ties with Belarus, Armenia, and East Timor. Poland set up a consulate in Brunei. His Majesty’s government also hosted the Thirty-Fourth ASEAN Economic Ministers Meeting where the early harvest package was added as a component to the ASEAN-China Free Trade Negotiations. As a contribution to heightening the awareness and identification of Southeast Asian youth with ASEAN, His Majesty’s government launched the ASEAN Under-21 football tournament called the Hassanal Bolkiah Cup. His Majesty had mooted the idea five years ago. Relations with Malaysia remained cordial. Brunei planned to set up two consulates in Sabah and Sarawak in order to cater for the welfare of the growing number of Bruneians visiting these two Federal states. The third meeting of the Brunei-Malaysia Joint Commission was held in Brunei. Travel, business, transnational crimes, and border issues were discussed at this meeting. The Malaysian Prime Minister, Datuk Seri Mahathir Mohamad, also arrived in Brunei for the regular “four eyes” meeting with His Majesty. Land and sea

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boundary issues between the two countries, along with global and regional affairs, were discussed. The visit of the Malaysian Yang Di-Pertuan Agong to Brunei signalled the culmination of the good relationship enjoyed between the two countries. The Crown Prince, Pengiran Muda Haji Al-Mutadee Billah, made two official visits to Japan and to China in the early part of 2002. His Majesty the Sultan of Brunei made several official visits to a number of countries and attended a number of summits in 2002. The year was one of the busiest years on the foreign affairs front. His Majesty attended the Asia-Pacific Economic Co-operation (APEC) summit in Mexico, Asia-Europe Meeting (ASEM) summit in Denmark, and the ASEAN summit in Cambodia. At these three summits, His Majesty reiterated Brunei’s stance against terrorism and its support for free trade. Germany was one of the countries His Majesty visited officially in 2002. He discussed economic co-operation between the two nations. His Majesty’s trip to Thailand saw the signing of the Memorandum of Understanding (MOU) between the Brunei Investment Agency and the Thai Government Pension Fund for a US$200 million matching fund to be invested in companies undergoing debt restructuring with local banks and the state-owned Thai Asset Management Corporation. Two other memorandums were signed for a joint venture in rice production and the investment of common stock of Biz Dimension Limited. His Majesty’s official visit to Syria opened the door for possible co-operation in the education, oil, and tourism sectors. His Majesty also made a two-day official visit to Bahrain. The highlight of these official visits was His Majesty’s trip to the White House in Washington, D.C. Discussions with President George Bush focussed mainly on terrorism and trade. The two countries signed a bilateral Trade and Investment Framework Agreement. This agreement provides for a discussion forum for the liberalization of trade and investment between the two nations. Generally, His Majesty was busy negotiating and opening doors for bilateral economic co-operation to help diversify Brunei’s economy and to take advantage of the investment opportunities that were available in 2002. At the same time, he was reiterating Brunei’s stance against terrorism. The military also had a busy year with its regional counterparts through a number of bilateral military exercises. The Royal Brunei Land Forces (RBLF) held a number of exercises with the Singapore Armed Forces, culminating with the largest exercise named Maju Bersama. The Australian Defence Force was involved in a bilateral exercise named Mallee Bull with the RBLF. The Royal Brunei Navy (RBN) conducted bilateral exercises with its Singaporean and Indonesian counterparts. It also completed a bilateral exercise with the U.S. Navy which was in the region to carry out similar bilateral exercises with other Southeast Asian militaries. The Royal Brunei Armed Forces also sent a number of observers to witness Exercise Cobra Gold in Thailand. This is the biggest multilateral exercise carried out by the Americans in the Asia-Pacific, involving Singapore and Thailand.

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Military ties with Canada and Australia were strengthened through official visits. The Canadian defence team came to Brunei to foster and strengthen the military relationship between the two nations. They were also here to discuss further expansion of bilateral exercises between the two armed forces. The Fourth Defence Working Committee meeting between Brunei and Australia was held in Brunei to discuss the implementation of additional programmes that included logistics co-operation, exercises, and military courses. The third offshore patrol vessel for RBN was launched in Scotland in 2002. Brunei had ordered it from the United Kingdom in 1998. These vessels will be used to patrol Brunei’s territorial waters and its Exclusive Economic Zone. Conclusion The major concern of His Majesty’s government in 2002 was the economy. The official visits overseas were also largely aimed at improving the economy. These efforts have yet to bear fruit and will be sustained in 2003. The socioeconomic problems of the tiny sultanate are becoming more acute and require greater government attention. The positive aspect about 2002 was that Bruneians were able to enjoy a safe and tranquil domestic environment despite the widespread fear of terrorism engulfing the region. In this light, Brunei had a peaceful year even though it may be seen as largely an uneventful one.

NOTES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Borneo Bulletin, 28 November 2002. Borneo Bulletin, 4 December 2002. News Express, 14 March 2002. Borneo Bulletin, 11 May 2002. News Express, 28 February 2002. Borneo Bulletin, 20 June 2002. News Express, 30 August 2002. Borneo Bulletin, 20 February 2002. News Express, 25 July 2002. Borneo Bulletin, 25 July 2002. Borneo Bulletin, 19 September 2002. Borneo Bulletin, 10 March 2002. News Express, 20 January 2002. News Express, 17 May 2002. Borneo Bulletin, 14 August 2002. Borneo Bulletin, 20 September 2002. News Express, 17 April 2002.

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CAMBODIA

Southeast Asian Affairs 2003, pp. 83–94

CAMBODIA Hun Sen Firmly in Control

Milton Osborne

During a year in which Cambodia was afflicted by both a prolonged drought and subsequent costly floods, there is no question as to what was the dominant feature of the country’s politics. Throughout 2002, Prime Minister Hun Sen continued to consolidate his position as the most powerful politician in the kingdom. He marginalized his opponents and not-so-subtly made clear that King Norodom Sihanouk, while welcome to play a ceremonial role, has no place in the country’s political life. To a large extent, Hun Sen’s primacy may be seen as the continuation of a trend that began in July 1997, when the Prime Minister used a savage coup to shatter FUNCINPEC (Front Uni National Pour Un Cambodge Indépendant, Neutre, Pacifique, et Coopératif), the major alternative political force within the country, which is led by Sihanouk’s son, Prince Norodom Ranariddh. Yet more than just continuity was involved, as the year saw Hun Sen’s Cambodian People’s Party (CPP) achieve a remarkable sweep of commune elections and the steady decline of FUNCINPEC into factional squabbling. At the same time, the always vocal Sam Rainsy, leader of the small opposition Sam Rainsy Party, was unable to be more than an annoying gadfly on the broader body politic. Hun Sen’s dominant role has not meant that Cambodia during 2002 was free of controversies — far from it. The issue of trials for former Khmer Rouge (KR) leaders remained unresolved and problems of corruption associated with the logging industry continued to dog this vital export industry. The programme for the demobilization of Cambodia’s excessively large military is not complete, with attendant links to corrupt practices on the part of the army’s top brass. In terms of the application of justice, the frequently criticized culture of impunity for the rich and privileged has not disappeared. How to develop the economy remained a matter for debate that spilled over into issues associated with the management of Cambodia’s major tourist attraction, the great temple complex at Angkor. Nevertheless, and despite the many valid criticisms that were levelled at the governance of Cambodia, particularly by the wide range of non-governmental

MILTON OSBORNE is a former Australian public servant and academic and the author of nine books on Southeast Asian history and politics. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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organizations (NGOs) active in Cambodia, the country has experienced greater stability during 2002 than any other year since 1997. Foreign relations have been generally untroubled, a fact reflected in Cambodia’s assuming the chairmanship of the Association of Southeast Asian Nations (ASEAN) for the second half of 2002, and hosting the 8th ASEAN Summit in Phnom Penh in November.

POLITICS: HUN SEN AND THE CPP CONSOLIDATE POWER Commune Elections The first local government, or commune elections in post-colonial Cambodia were held in February. These resulted in the election of 11,251 members from a field of more than 30,000 candidates. Although FUNCINPEC and Sam Rainsy candidates were elected (2,213 FUNCINPEC candidates and 1,340 SRP candidates), the results represented a political triumph for the CPP whose candidates gained 7,698 commune seats, or 68 per cent of the total, with all but a handful of the positions as commune chiefs going to CPP candidates. As with previous national polls, the commune elections were accompanied by instances of political violence, with at least ten, and possibly twenty, pre-poll deaths directly linked to the election process. While a subject for much NGO criticism, it does seem fair to judge that the level of political violence was less than had occurred during the national elections held in 1993 and 1998. One feature of the commune elections that has not received the attention it deserves is the extent to which the CPP’s success called into question whether FUNCINPEC’s link with King Sihanouk, as a royalist party, any longer played a significant part in causing electors to vote one way or the other. Sihanouk himself was reported to be deeply disturbed by this issue, a factor that probably played a part in his threats to abdicate that he had made in September and which are considered later in this article. Politics in General The CPP’s success, both in the commune elections and more generally, is a reflection of many things. Of first importance is the extent of the CPP’s continuing control over the major part of the civil administration and the forces of order, the military and police. This noted, it is also proper to record the fact that the CPP has shown much greater skill and energy than its opponents in advancing its policies and power in the rural areas through the establishment of a widespread network of branch offices. This network is far superior to any efforts by either FUNCINPEC or the Sam Rainsy Party to project its political presence into the provinces. At the same time, and more generally, Hun Sen and his lieutenants have shown themselves to be far more astute politically than the FUNCINPEC party machine led by Norodom Ranariddh.

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While sneeringly referred to by his critics as a “peasant”, Hun Sen has continued to grow in his job as Prime Minister, displaying what might, indeed, be described as peasant characteristics of cunning and resilience while steadily developing more sophisticated political skills. To the extent that he allows himself to display a harsh and even brutal side to his personality, from time to time, he probably gains political kudos among many Cambodians as a strong leader who knows his mind and is prepared to act forcefully to achieve his goals. Certainly, he makes no secret of his ambition to remain in power. In October he announced that he would be the sole CPP candidate for the prime ministership following the 2003 elections, and in early December he stated that he would like to rule for at least another ten years. In all of this, Hun Sen’s energy and skill contrasts sharply with the image generated by Prince Ranariddh. Ranariddh has never appeared comfortable as a politician. Drafted into a political role as the nominal military leader of FUNCINPEC during the 1980s, at the time of the Vietnamese occupation of Cambodia, Ranariddh has made little secret of his regret at no longer living his previous life as a lecturer in law at the University of Aix-en-Provence. He was out-manoeuvred at the time of the 1993 elections, and accepted the imposed role as co-Prime Minister with Hun Sen. Then, following the coup of 1997, when Hun Sen established his pre-eminent position within the state, and after the 1998 general election, Ranariddh accepted the essentially powerless position of President of the National Assembly while aligning his party in a coalition with the CPP. In a country in which the ability to exercise patronage is at the heart of the political system, Ranariddh has been able to offer little to his supporters. This failing led to increasing indications of dissatisfaction within FUNCINPEC during 2002 as the current Members of Parliament contemplated their uncertain electoral prospects in the general election scheduled for July 2003. The most obvious indications of dissatisfaction within FUNCINPEC were made clear during 2002 by the defections from the party of existing members, who formed two new parties, the Hang Dara Movement, an alternative pro-royalist party, and the Chakrapong Khmer Spirit Party, the latter led by Ranariddh’s half-brother, Prince Norodom Chakrapong. Both of these parties claim to have gained support from defecting FUNCINPEC members, but in the absence of accurate information it is difficult to assess their importance. More telling was the dismay shown by FUNCINPEC parliamentarians following the failure of the National Assembly to endorse the appointment of Khan Svoeun as co-Minister of the Interior in August. This failure was seen as a reflection of Ranariddh’s inability or unreadiness to provide effective support to party members and a sign of a likely further weakening of FUNCINPEC electoral appeal when the 2003 elections are contested. Some internal critics have suggested that FUNCINPEC will be lucky to retain half of its existing seats in the forthcoming 2003 elections. In this regard, it is striking that Dr Lao Mon Hay, a respected, politically neutral, local observer of Cambodian

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politics, has reached the conclusion that voters now perceive that the CPP has done far more for them than either FUNCINPEC or the Sam Rainsy Party. This judgment was made against the background of the previous decline of FUNCINPEC’s representation in the 122-seat National Assembly, from 58 in 1993 to 43 in 1998.1 Royal Politics Ready to adopt practices previously only associated with the royal family, such as presiding over traditional state ceremonies, Hun Sen has made clear his concern that King Sihanouk, or his successor, should not become an alternative source of authority within Cambodia. Despite the monarchy’s continuing popularity, particularly in provincial Cambodia, neither Sihanouk, nor any successor, appears to pose a threat to Hun Sen’s position since under the Constitution the king has only limited powers. The present king’s uncertain health, his choice to live in Siemreap rather than Phnom Penh and his frequent absences from Cambodia for medical treatment in China underline this point. Nevertheless, the issue of who should succeed Sihanouk following his death has become an active issue for those who support the continuation of the monarchy. Most importantly, they are concerned that there is no existing law to regulate the procedures of the Throne Council which has the responsibility of choosing a new occupant for the throne following the king’s death. Unless this is done, pro-monarchists assert that, Hun Sen and the CPP could in the future manipulate procedures to make a partisan choice that would place a pro-CPP monarch on the throne, or even act to eliminate the monarchy altogether. Under the Constitution, the Throne Council consists of nine members: the Prime Minister, the Presidents of the National Assembly and the Senate and their four respective deputies, and the leaders of the two Buddhist sects. Article 12 of the Constitution states that the manner in which the Throne Council should proceed to make its choice will be determined by law, but at the end of 2002 no such law had been enacted. Under the Constitution those who might be considered as a candidate for the throne extends to about sixty male persons who are more than 30 years of age and are descendants of King Ang Duang, the Cambodian ruler who died in 1860. The succession issue gained prominence in July when a source in the royal palace spoke of Sihanouk’s concern that no law to regulate the actions of the Throne Council was in existence and of the king’s fear that the CPP might use its power to ensure that whoever succeeded him would be the CPP’s puppet. In a rare public intervention on the subject, Hun Sen rejected the king’s call for the Parliament to pass a law laying down the procedures of the Throne Council, stating that preparing for the 2003 elections was a more important issue. The matter was given further impetus by reports in September that Sihanouk was contemplating abdicating. According to widely circulating accounts of his intentions, Sihanouk was said to have drafted two letters

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announcing his decision to abdicate. The first, drafted on 11 September, reportedly called on the government to amend the Constitution to allow his wife, Queen Monineath, to rule as regent, or to convene the Throne Council to nominate a successor. A second letter, drafted the following day apparently dropped the suggestion of the queen’s appointment as regent, at her request. Widespread speculation that Sihanouk would announce his abdication following his 80th birthday on 31 October proved to be unfounded.2 During October also the tensions between Sihanouk and Hun Sen were given one of their rare public airings, with Sihanouk accusing Hun Sen of having turned Cambodia into a “beggar state”. In a swift reaction, Hun Sen struck back with the riposte that in terms of money the royal palace with its expenditures of more than US$5 million was guilty of unnecessary improvidence.3 While the future of the monarchy may appear to revolve around theoretical, and even antiquarian issues, there is no doubt that the appointment of a king to the throne who endeavour to interfere in politics could present a problem even for a leader as powerful as Hun Sen. While difficult to see in current circumstances, a future activist king could, at the very least, be a nuisance to a parliamentary leader. Politically conscious Cambodians retain a memory of the role played by Sihanouk himself after he was placed on the throne by the colonial French regime in 1941. Expected to remain a malleable figure, he matured to become a powerful political player. Of the three most commonly mentioned names as possible successors to Sihanouk, Prince Ranariddh and Prince Sihamoni, Sihanouk’s son and his half-brother, have publicly claimed to have no interest in gaining the throne. The position of Prince Norodom Sirivudh, Sihanouk’s half-brother and current secretary-general of FUNCINPEC, is less clear, but there is little to suggest that he has either the skills or the support that could lead him to challenge Hun Sen’s position of authority should he be the Throne Council’s choice. To the extent that Phnom Penh gossip has any foundation, there have been repeated suggestions that Hun Sen and Queen Monineath, in concert, favour Prince Sihamoni as Sihanouk’s successor. A former ballet dancer and teacher, who is currently resident in Paris as Cambodia’s ambassador to UNESCO, Sihamoni is the sole surviving son of the union between Monineath and Sihanouk.4 Khmer Rouge Tribunal Trials As 2002 drew to a close, there was still no resolution to the vexed issue of the form that a tribunal to try former Khmer Rouge (KR) leaders should take, and of who should appear before it. Discussion of the possibility of establishing a tribunal to try senior KR members for the terrible crimes committed during the Pol Pot period began in 1997 following the passage of a United Nations resolution.5 Despite various public statements suggesting he was ready for the establishment of a tribunal, it was clear from the outset that Hun Sen was reluctant to see it come into being along the lines that the United Nations was

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suggesting. In domestic terms, the existence of a tribunal would raise the question of who would or would not be tried, a problem for an administration with many former KR figures within it. Furthermore, Hun Sen at various times has stated that establishing a tribunal could lead to Cambodia once again descending into civil war. From the point of view of foreign policy, there is no doubt that China, whose support for the KR regime between 1975 and 1979 is a matter of record, has little enthusiasm for the proposal. Nevertheless, in May 2000 the United Nations and Cambodia reached an agreement in principle to establish a “mixed” war crimes tribunal that would include Cambodian and international judges and prosecutors. In January 2001, the Cambodian Parliament passed a law relating to the establishment of a tribunal. After amendments to eliminate the possibility of convictions leading to the death penalty, the law was passed again in August of the same year. Crucially, the law did not include provisions for the United Nations to oversee the tribunal, neither did it guarantee the right of prosecutors to pursue former KR leaders, such as Ieng Sary, who had been granted amnesty in 1996. In the face of this decision, and after further discussions, the United Nations chief legal counsel, Hans Corell, announced that the United Nations had decided to end discussions with Cambodia on the establishment of a tribunal.6 Corell’s decision brought forth a predictably hostile response from the Cambodian Government, with chief negotiator, Sok An, saying that Cambodia would not make any further concessions. Nevertheless, by June 2002 Hun Sen assured those attending the annual Cambodian Donors’ Meeting that his government remained committed to establishing a tribunal, although he made clear that a solution to the existing impasse “has to be Cambodian in nature”.7 Negotiations between Cambodia and the United Nations were resumed in August. The next step in this tangled tale was the passage by a United Nations General Assembly committee in November of a resolution that urged SecretaryGeneral Kofi Annan to restart negotiations with the Cambodian Government. With the support of the United States, China, France, and Cambodia, it was expected that the resolution would be adopted by the General Assembly.8 Critics of the resolution, such as Amnesty International, maintain that it still fails to address the problems associated with the “mixed tribunal” agreed to in 2000, since what has been proposed is a tribunal with a majority of Cambodian judges and without an international prosecutor. Such a situation, Amnesty argues, will not resolve the continuing and major problem of impunity.9 Meanwhile, in an associated development suggesting that senior KR figures such as Khieu Samphan now have real fears that a tribunal will come into being, he and others who are still at large have called on the government not to put them on trial for genocide but instead to institute a South African-style truth and reconciliation commission. If this were done, they say, they would be prepared to testify about the internal workings of the Pol Pot regime.10

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Justice and Impunity In September, after a long delay, verdicts were finally brought against Nuon Paet and Chhouk Rin for their part in the abduction and murder of three Westerners in 1994. Both were sentenced to life imprisonment, as was Sam Bith, the senior KR commander accused of ordering the killing, when he was tried in December. The conclusion of these cases cannot be taken to mean that all is well with Cambodia’s justice system, a point made clear by UN Human Rights High Commissioner, Mary Robinson, when she visited Cambodia in August, and by Peter Leuprecht, the UN Special Representative of the Secretary-General for Human Rights in Cambodia. Even allowing for the measured manner in which Leuprecht couched his comments on the justice system, he made his view abundantly clear that judicial reform is urgently needed in Cambodia, and that such reform requires an independent and non-corrupt judiciary. In a telling comment in an interview with the Phnom Penh Post at the beginning of December, Leuprecht said: Unfortunately justice is not the same for people who are rich and powerful, and people who are poor and weak. The law should apply to everybody in the same way, but it does not. Very often people who have power because of their position are abusing that power because of their position within the state. I think this is quite common, the abuse of power.11

While maladministration of justice is a reflection of many factors, including the lack of proper legal training for many occupying judicial positions, the low salaries paid to judges have made them particularly susceptible to corruption. In this regard, Leuprecht has welcomed the government’s plans to raise judges’ salaries from the current level of US$30 a month to US$300. Foreign Relations Hun Sen and his government can look back on 2002 with general satisfaction as far as foreign relations are concerned. Despite criticism from United Nations representatives such as Peter Leuprecht and recurring problems with international agencies such as the World Bank and the Asian Development Bank over the implementation of various economic arrangements, in 2002 the kingdom encountered few problems as a result of its external policies. With Cambodia’s foreign policy concerns closely linked to obtaining external aid, Hun Sen successfully negotiated a renewal of aid from the Cambodian Consultative Group meeting held in June, receiving pledges that will result in annual donations of US$485 million over three years. This was obtained despite criticism from many donors over the failure of Cambodia to achieve many of the political and social goals that had been laid down at the previous donors’ meeting in Tokyo in 2001.12 Having assumed the rotating chairmanship of ASEAN at the beginning of July, Cambodia’s hosting of the 8th ASEAN Summit in November was the

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highlight of the foreign policy year. During the Summit, China’s Premier, Zhu Rongji, announced that Beijing, in a gesture of friendship, was writing off all old Cambodian debts to Beijing, some dating back to the 1960s. The exact size of such a write-off remains uncertain, for it is unclear whether recent debts are included — China has lent Cambodia more than US$210 million since 1999. Whatever is the case, the announcement emphasized the continuing growth of close relations between Cambodia and China. There have been regular visits of senior Chinese civil and military officials since 1999, and in the month before the ASEAN Summit China promised increased military aid to Cambodia during 2003 of the order of US$2.4 million.13 Warm relations with China have not replaced Hun Sen’s close association with Vietnam, but China’s much greater power and capacity to offer aid have certainly qualified Cambodia’s relationship with its immediate eastern neighbour.

ECONOMY, SOCIETY AND THE ENVIRONMENT The Economy Despite estimated gross domestic product (GDP) growth of around 5.5 per cent, achieved in 2001, Cambodia’s economy, as in previous years, was kept afloat by a mixture of bilateral and multilateral aid with government expenditure substantially exceeding revenues. The overall situation is reflected in the growing size of Cambodia’s debt burden, with outstanding debts to the World Bank and the Asian Development Bank now in the order of US$500 million. Cambodia has become host to a number of low-cost labour industries, such as garment making. Although these are not value-adding enterprises they do make a contribution to Cambodia’s export revenues, together with rice which is once again being exported, though in relatively small quantities in comparison with the pre-Vietnam War period. Overall, Cambodia’s agricultural export potential remains undeveloped, in part because of the slow process of demining previously productive areas. Tourism linked to the Angkor temples remains of major importance for the economy as an earner of foreign exchange. Here, too, controversy has emerged as concerns have grown about the untrammelled development of tourist facilities in Siemreap, the provincial town closest to the temples. For the moment, Hun Sen has made clear his view that the money to be earned from increased tourist arrivals overrides future problems that may stem from possible overdevelopment.14 The continuing contributions from members of the Cambodian Consultative Group were made despite repeated concerns that the government had done little to combat corruption. For all the critical comments made by donors, it remains the case that the international community, having become involved at the time of the United Nations-brokered settlement of “the Cambodian problem” at the beginning of the 1990s, can scarcely turn its back on the kingdom at this time. To do so would be to open the way to an even greater

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divide between the rich and powerful and the majority poor. Thus, comments such as those from Sweden characterizing corruption as “rampant” made at the time of the donors’ meeting assume a ritual form as funding continues to be provided.15 This same pattern of pervasive corruption is apparent in the administration of aid provided by international institutions such as the World Bank, with the bank’s involvement in financing the demobilization of the over-sized Cambodian armed forces as a case in point. No exact figures for the size of the Cambodian armed forces are available, but the commonly cited number of military personnel is 120,000, of whom 500 are generals. A World Bank-led group of donors has provided US$42 million to finance the demobilization of 30,000 soldiers. Each demobilized soldier is eligible for a payment of US$240. So far, only 15,000 soldiers have been demobilized. A bank investigation published in October raised serious questions about the manner in which funds were being disbursed, with claims that payments were being made to “ghost soldiers” (soldiers who existed only in name on military rolls) and of demobilized soldiers paying their commanders bribes in order to be demobilized a second time. Threats from the bank to cut off funding for this programme have been met by Hun Sen’s counter-threat to abandon the programme.16 The Environment Control of logging remains Cambodia’s most pressing environmental problem. World Bank and Asian Development Bank studies in 1998 warned that without major reform Cambodia could exhaust its supply of exploitable timber in five years. Under consistent pressure, particularly from NGOs, the government introduced measures in 2000 that led to the banning of any new logging beginning in 2002 and provided for environmental and social impact assessments. As of November, the implementation of the assessment process was under heavy criticism from the government’s forest crime monitor, the NGO Global Witness, which warned that the manner in which the Department of Forestry and Wildlife was proceeding would lead to a rapid loss of Cambodia’s remaining forest reserves. During 2002 the World Bank twice delayed releasing funds because of concerns about procedures associated with forest management. Meanwhile, illegal logging continues, aided by the susceptibility to bribing of the low-paid government employees charged with protecting forest reserves.17 While illegal logging remains Cambodia’s most immediate environmental concern, developments associated with the Mekong River system pose longterm problems. Fishermen operating on Cambodia’s Great Lake state that their catches have been declining. They attribute this to increased sedimentation on the floor of the lake as the result of unchecked logging, where clear felling of timber has meant that there is an increased run-off of topsoil into the lake, and increased agricultural activity along the lake’s shore. This activity has led to deforestation of areas that are partially flooded during the wet season, and which were the breeding grounds for many species of fish in the lake.

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For a country that depends for more than of 80 per cent of its animal protein from fish harvested from the Mekong and the Great Lake, any fall in the fish catch is a major concern. For this reason, the very real possibility that dams already constructed and being built on the upper Mekong in China might seriously damage the fishing industry is an issue of grave concern. There is no evidence, however, that the Cambodian Government is ready to take up this issue with China, particularly in view of the latter’s role as a major aid donor.18 A further environmental issue associated with the Mekong River system is the effect being felt within Cambodia of the construction of a dam at the Yali Falls on Se San River in Vietnam. This river flows out of Vietnam into Cambodia to join the Mekong at Stung Treng. Unannounced releases of water from the dam have resulted in flash floods which dramatically lower the quality of the water in the Se San, forced villagers to abandon long-established farming areas, and disrupted fish supplies. There are plans for a second dam on the same river, although it is not yet under construction. The plans for a further dam has led to protests by villagers likely to be affected, and it is unclear if the Cambodian Government can prevent this development.19 Society Cambodia remains a highly fragile society, deeply divided between those who through membership of the government or association with it are either wealthy, powerful, or both, and the overwhelming majority of the population who struggle to survive. Figures for vital social indicators cannot be regarded as entirely reliable, but there is general consensus that more than 55 per cent of the population live below the poverty line, that 70 per cent do not have access to clean water, and that more than 45 per cent of children are under-nourished. Figures cited for literacy vary greatly, but it seems certain that only 40 per cent of the population as a whole are literate. These disturbing figures go hand in hand with the continuing high incidence of HIV infections, even though the number of those with HIV in the population has declined. According to government figures released in September, the percentage of adults infected with HIV now stands at 2.6 per cent, as opposed to 2.8 per cent two years earlier. These figures need to be treated cautiously, both because of uncertainty about the reliability of the statistical method and because of the abundant evidence of a still thriving sex trade, both in the capital and in provincial towns. A further index of the fragility of Cambodian society may be found in the malaise affecting some aspects of Buddhism, the religion of the overwhelming majority of the Cambodian population. (Out of a population of approximately 12 million, there are some 11,200,000 Buddhists, 700,000 followers of Islam, and 100,000 Christians.) At first glance, Buddhism appears to have made a remarkable recovery from the devastation of the Pol Pot period when the practice of the religion was outlawed, two-thirds of the kingdom’s wats (Buddhist

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pagodas) were destroyed, and many senior monks were killed or died as a consequence of the terrible conditions of the time. In the past decade, Buddhism appears to have made a triumphant return with many new wats built and a growing number of men entering the monkhood. At the same time, there is increasing evidence that many of those who have become monks have little understanding of their religion and violate the tenets of their faith by indulging in worldly pleasures, such as drinking alcohol and consorting with women.20 Conclusion Observers will be divided on how to assess the events of 2002 in Cambodia, with each individual placing differing weight on the importance of increased stability under the authoritarian leadership of Hun Sen, as opposed to continuing evidence of major social problems and the still prevalent culture of impunity. With elections due in July 2003, a good measure of the extent to which current stability is more than a passing phase will be the degree of pre-poll violence that occurs in the run-up to the elections. Predictions made six months in advance of the forthcoming elections are open to considerable later adjustment. Nevertheless, short of great changes that currently seem unlikely to occur, Prime Minister Hun Sen and his CPP associates seem set to hold power for some time to come.

NOTES 1. For a discussion of these issues, see Vong Sokheng, “Funcinpec members fear meltdown”, Phnom Penh Post, 30 August–12 September 2002, pp. 1–2. 2. See Vong Sokheng, “Succession issue troubles king”, Phnom Penh Post, 5–18 July 2002, pp. 1–2; and Vong Sokheng and Robert Carmichael, “King mulls abdication”, Phnom Penh Post, 27 September–10 October 2002, pp. 1–2. 3. Kamina Lyall, “A nation’s throne in crisis”, Australian, 7 October 2002. 4. For a historical background to the process of royal succession in Cambodia, see Milton Osborne, “King-making in Cambodia: From Sisowath to Sihanouk”, Journal of Southeast Asian Studies, 4, no. 2 (September 1973): 169–85. On recent developments, see also Seth Mydans, “Shuffling ‘Heirs’ to the Cambodian Throne’”, New York Times, 30 November 2002. 5. Pierre P. Lizée, “Testing the limits of change”, in Southeast Asian Affairs 1999, (Singapore: Institute of Southeast Asian Studies, 1999), p. 88. 6. BBC News, World: Asia–Pacific, 23 February 2002. 7. Bill Bainbridge and Vong Sokheng, “Take a broader view — PM”, Phnom Penh Post, 21 June–4 July 2002. 8. Colum Lynch, “U.N. Panel Backs Trials in Cambodia”, washingtonpost.com, 21 November 2002. 9. Vong Sokheng, “UN set for new mandate on KR trial”, Phnom Penh Post, 22 November–5 December 2002. 10. Sydney Morning Herald, 2 December 2002, p. 9. 11. Charlotte McDonald-Gibson, “Judicial reform key to ending abuse of power”, Phnom Penh Post, 22 November–5 December 2002, p. 6. 12. Bainbridge and Sokheng, “Take a broader view — PM”, pp. 1–2.

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13. “China and ASEAN: Still a sea of troubles”, The Economist, 9 November 2002, p. 30; and Bill Bainbridge and Vong Sokheng, “World woos ASEAN in Phnom Penh”, Phnom Penh Post, 8–21 November 2002, pp. 1–2. 14. Amy Kazim, “Loss of magical mystery could spell the ruin of Angkor”, Financial Times, 4 October 2002; and Milton Osborne, “Will gridlock come to Angkor”, TAASA Review, Journal of the Asian Arts Society of Australia 10, No. 4 (December 2002): 26. 15. Bainbridge and Sokheng, “Take a broader view — PM”, pp. 1–2. 16. “Demobilisation in Cambodia, Cam-bodge: Turning swords into ploughshares is proving tricky”, The Economist, 28 September 2002, p. 34; and Patrick Falby, “Fraud found in demobilisation process”, Phnom Penh Post, 25 October–7 November 2002, pp. 1, 19. 17. Michael Coren, “Forestry decisions leave NGOs aghast”, Phnom Penh Post, 8–21 November 2002, pp. 1, 5. 18. Tyson Roberts, “Killing the Mekong: China’s Fluvicidal Hydropower-Cum-Navigation Development Scheme”, Natural History Bulletin, The Siam Society 49 (2001): 143–59; and Milton Osborne, “The Strategic Significance of the Mekong”, Contemporary Southeast Asia: A Journal of International and Strategic Affairs 22, no 3 (December 2000): 429–44. 19. Richard Sine, “Rough Waters: Cambodians fear the impact of a dam now being built. The problem is the dam is in Vietnam”, Far Eastern Economic Review, 22 August 2002, p. 20. 20. Eric Unmacht, “Monks Behaving Badly”, Far Eastern Economic Review 165, no. 48 (5 December 2002): 64–65.

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INDONESIA

Southeast Asian Affairs 2003, pp. 97–116

INDONESIA IN 2002 Megawati’s Way1

Anthony L. Smith

Introduction On 25 December 2002, President Megawati Soekarnoputri made a one-day visit to Papua. During a ceremony with 3,000 people in Jayapura, the normally reticent Megawati announced that she would sing her favourite song as a Christmas present for the people of Papua. The song she chose was Frank Sinatra’s “My Way”. Yet the year 2002 was marked by constant media commentary that Megawati had failed to show leadership on any of the major issues to confront Indonesia. Megawati’s way, it turns out, is to be instinctively cautious. Indonesia continues to deal with the twin economic and political crises that began with the Asian financial crisis in 1997. Politically, Indonesia continues to be in a transitional phase as the body politic moves towards strengthening its infant democracy. The year saw yet another set of incremental constitutional amendments, while keeping to the 1945 Constitution. Despite hopes after Megawati’s selection as President in 2001, raised in particular by the announcement of a strong Cabinet, the current administration has been described as lethargic by many pundits. During 2002, there was no reshuffle of the Cabinet, although there were very public difficulties with several members of the executive. While Megawati skirted around the question of a Cabinet reshuffle in mid-2002, by the end of the year she was scotching any suggestion of Cabinet changes completely. Regional autonomy continues to devolve resources and decision-making to the outlying regions. A peace deal in December 2002 in Aceh may or may not bring about actual peace, but there was still a great deal of violence in both Aceh and Papua throughout the year. The event that singularly grabbed global media attention, however, and has some profound implications for Indonesia, was the terrorist bomb blast in Bali on 12 October 2002 — the single largest terrorist attack since the Al-Qaeda attacked the U.S. mainland on 11 September 2001. The Megawati administration has been forced to confront the problem of international terrorism in its own backyard.

ANTHONY L. SMITH is a Senior Research Fellow at the Asia–Pacific Center for Security Studies, Hawai’i, USA. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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Political Developments and Outlook With no real progress in terms of wider political and economic change — with minor exceptions, such as a further constitutional adjustment — a broad pessimism about the Megawati administration increasingly crept into the chattering classes in Indonesia throughout 2002. Megawati has failed to become involved in policy discussion in the public arena, and many question whether she is even interested in policy details.2 Megawati assumed the presidency of Indonesia on 23 July 2001 in controversial circumstances. Her ascension to the executive marked the end of a political paralysis that had gripped Jakarta under Abdurrahman Wahid. Wahid, the head of a political party with about 10 per cent of parliamentary seats, had been removed by the MPR (Majelis Permusyawaratan Rakyat or People’s Consultative Assembly) on charges of corruption, but his failure to share power with parties in Parliament to cobble together a working majority was his ultimate undoing. Megawati brought more regime stability to the political system, and it is unlikely that she can be removed in the same manner, despite dire predictions from some commentators at the time of the leadership change. Not only is Megawati’s party the largest in the legislature, but the rules regarding impeachment have been tightened up. Megawati, against expectations, resisted all pressure to reshuffle her Cabinet in 2002. Although initially hailed as the “Dream Team” Cabinet because of its combination of technocrats and concessions to multiparty interests, the Cabinet was widely regarded as ineffective throughout 2002, even by members of Megawati’s own party. In August 2002, the faction head of the Indonesian Democracy Party-Struggle (PDI-P), Roy B.B. Janis, publicly demanded a reshuffle — most likely so that PDI-P could strengthen its position and take more seats at the Cabinet table. Megawati, mindful that a Cabinet reshuffle was the trigger for her predecessor’s ignominious removal from office, has opted not to upset the balance of power within her multi-partisan executive. One of the problems for the Cabinet was that it sometimes contradicted itself. Dissenting opinions and contradictory messages were aired openly and publicly. At one stage, the Minister of Justice had criticized his own government for not being “proactive” enough on the issue of illegal workers in Malaysia. The ministers forming the economic team were clearly in gridlock during 2002, and the Co-ordinating Minister for Economy Dorodjatun Kuntjoro-Jakti was unable to marshal them. The Minister for National Development Planning Kwik Kian Gie, a PDI-P stalwart and one of Megawati’s most loyal and longstanding advisers, continued to urge Indonesia to end its involvement with the International Monetary Fund (IMF). Some ministers also made embarrassing gaffes. Perhaps the most embarrassing moment belonged to the Minister for Religious Affairs, H. Said Agil Munawar, who attracted ridicule for claiming that a soothsayer had revealed an ancient prophesy which indicated where he could find enough buried treasure in the ground to pay the national debt. When he was proven

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wrong, Megawati had to distance herself from the minister. The most damaging corruption scandals revolved around the Attorney General, M.A. Rachman, who failed to declare all his assets, including a luxury house. Yet by the end of 2002 Megawati was resolute in declaring that she would not replace him. Cabinet Secretary and State Secretary, Bambang Kesowo, was criticized by PDI-P leaders for blocking access to the President and presiding over an office accused of leaking state funds. Another to face criticism was Defence Minister Matori Abdul Djalil, for not having achieved anything while in office. The only person in the Cabinet who did not have his reputation tarnished was that of Co-ordinating Minister for Security, Susilo Bambang Yudhoyono, who came to greater prominence as a result of his leadership in dealing with the Bali bomb blast. Increasingly, his name crops up in discussions about potential candidates for President or Vice-President; however, his lack of a political vehicle may be an impediment. Perhaps the most troubling opponent for Megawati was her own VicePresident, Hamzah Haz. Haz declared during 2002 that he would run for President in 2004. The Vice-President continued to use Islamic politics to his advantage, or at least when it suited him. While supporting Shariah law for Muslims in Indonesia, in April 2002 he refused to have local United Development Party (PPP) officials support Shariah law in south Sulawesi. On that occasion, he argued that rushing ahead would give Islamic law a bad name. However, Haz’s most dramatic political manoeuvre was to make political theatre out of seeking out photo opportunities with Islamist extremists. While Haz’s own political position is not as hardline as groups such as the Laskar Jihad, he made political capital out of courting elements further to his right. In May, the Vice-President visited Laskar Jihad leader, Ja’far Umar Thalib, for a 90-minute meeting. Thalib was detained at the time (and later sentenced) on charges of inciting a pogrom against Christians in Maluku, in which thirteen people died on 28 April 2002. Haz described his visit in these terms: “I went there as a Muslim. Part of Islamic unity is Islamic brotherhood.”3 Later that same month, Haz paid a “brotherly visit” to the Al-Mukmin Muslim boarding school at Ngruki, just south of Surakarta. Al-Mukmin is run by suspected Jemaah Islamiyah (JI) spiritual leader, Abu Bakar Ba’asyir. The Singapore Government had already fingered Ba’asyir as the head of the shadowy terrorist organization. After the Bali bomb blast, Haz’s reputation suffered, and the Vice-President found it necessary to alter his rhetoric (see below). In the year 2002, it became further evident that all the major political parties in Indonesia have internal rivalries that threaten to become open splits. Megawati’s party, PDI-P, continues to hold together, but disillusionment lies very close to the surface. In particular, the “reformasi ” activists who joined the party prior to the 1999 general election have been disappointed by Megawati’s conservative position. The Golkar Party, former ruling party under Soeharto,

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has exhibited a number of factions, but Akbar Tandjung’s conviction on embezzlement charges has added to an existing division between the Jakartabased politicians and the caucus of the outer islands’ representatives (known as “Iramasuka” — Irian Jaya, Maluku, Sulawesi, Kalimantan). In September, Akbar was found guilty of graft and sentenced to three years in prison, well short of the twenty-year maximum sentence that the law allowed for. Some newspapers wrote Akbar’s political obituary, but did so prematurely. Akbar filed an appeal and retained his positions as head of Golkar and Speaker of the House. Akbar’s own party, Golkar, did not seek to depose him.4 However, the PDI-P also did not seek to remove Akbar as parliamentary Speaker, evidently preferring the status quo. It is most likely that Megawati has considered it best not to upset the balance of power at this stage, and a Golkar Party headed by Akbar may well suffer an image problem in the next election. Whatever the reason, Akbar has remained Speaker of the House partly as a result of Megawati’s largesse. The party of Abdurrahman Wahid, the National Awakening Party (PKB), splintered in July 2001 when party chairman (and Wahid rival), Matori Abdul Djalil, and his supporters, voted for Wahid’s impeachment. In 2002 attempts to reconcile Matori’s rebel faction with the rump party, led by former Foreign Minister, Alwi Shihab, failed, and the party has since operated as two entities with the same name. Hamzah Haz’s lurch to an Islamist platform has seen a rebellion within his party the PPP. Kiyai Haji Zainuddin M.Z. established the ginger group PPP Reformasi. Zainuddin launched a public attack on the PPP’s attempt to place Shariah law in the Constitution. He also criticized both Megawati and Haz for hanging on to party chairmanship positions. Amien Rais’ party, the National Mandate Party (PAN), faced a similar Islamist/secularist divide. One party expected to gain markedly from this state of flux within the Muslim parties is the Justice Party (PK), a small Islamist party of Muslim intellectuals. A multipartisan Cabinet, combined with intra-party feuding and ideological disagreement, has muddied attempts to distinguish the “government” from the “opposition”. There could well be a shake-out before the next election, especially among the Muslim parties, which may experience factional realignments, with the enormous portion of the electorate that voted for reformasi in the last election remaining as a pool of potentially swinging voters. However, most of the electorate will likely vote according to sectoral interests, determined by habitual religious, ideological, or institutional affiliations, usually known as aliran (cultural streams) in Indonesia. Among the new political parties that have formed, two received some media attention, although chances of success for these parties still look slim. In July 2002, the former State Minister of Administrative Reform, Ryaas Rasyid, and an academic and political adviser, Andi Mallarangeng, launched the Nation Democratic Unity Party (PPDK), which will run on a platform of strengthening regional autonomy issues. The other party to gain attention is the latest attempt

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to revive the memory of Soekarno. Well-known entertainer, Eros Djarrot, founded the Bung Karno Nationalist Party (PNBK), and will therefore seek to chip away at the PDI-P’s mantle. Although election rules are still to be formalized, the House of Representatives has given approval to a system for the selection of political parties. A bill passed in December 2002 stipulated that a political party must have established offices in at least half of all the Indonesian provinces, in half of the regencies in these provinces, and in one-fourth of all districts in each of these regencies. The bill also determined that there would be no party hopping, as members who lose their party membership will be removed from the legislature — a measure that will further centralize power in the hands of party hierarchies. More than 200 parties have now registered with the Justice and Human Rights Minister for the 2004 elections. Constitutional Change and Parliament For the fourth year running, Indonesia’s supreme legislative body, the MPR, implemented a set of changes to Indonesia’s 1945 Constitution. Megawati and the PDI-P objected to direct presidential elections, while Megawati argued, even up to the MPR session in August 2002, that the Indonesian people were not ready to vote in two rounds for the head of state. More than one commentator has pointed out the anti-democratic nature of these sentiments. Why Megawati would object to direct elections, the absence of which cost her the presidency in 1999, is a mystery to all but Megawati and her inner circle of advisors. In the end, the PDI-P did shift on this issue. The 2002 annual session of the MPR removed its own power of presidential appointment and announced that a direct presidential election will be held in two rounds: with a second round for the top two candidates coming into play if the leading candidate does not obtain 50 per cent plus 1 of the votes and a minimum of 20 per cent in half of all the provinces. (Despite the fears of the PDI-P, Megawati must surely, at a minimum, be in pole position to secure one of two leading positions for the second round.) Other changes include: (a) clearer rules on the removal of the President — namely, that this can only occur in the case of a breach of the Constitution or inappropriate moral behaviour — which are to be decided by the Constitutional Court; (b) the establishment of a Constitutional Court, which removes the power of constitutional interpretation from the MPR; (c) strengthening the independence of the electoral commission; and (d) altering the composition of the MPR to consist of the DPR (Dewan Perwakilan Rakyat or House of Representatives) and the DPD (Dewan Perwakilan Daerah or House of Regional Representatives) after 2004. Not only has the MPR now surrendered much of its power, but the removal of appointed members cuts away a nondemocratic element in the formal political structure. Another change, made alongside the MPR’s amendments, was to abolish the thirty-eight non-elected seats of the military/police faction in the DPR, with the faction leader, Agus

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Widjojo, publicly accepting the move as a positive one for the military — another small victory for democratization. Notable, principally by its failure to gain traction, was an attempt to include the “Jakarta Charter” in the Constitution, which would legally require Muslims to follow Shariah law.5 The amendment, however, could not even gather a third of the MPR members in support — the minimum necessary to place an amendment on the floor. In an embarrassing setback for hardline Islamist legislators, the issue was revealed as a complete non-starter, even among the majority of Muslim lawmakers. As public expectations of Parliament continue to sink, the lack of enthusiasm of the representatives for even important legislation is becoming evident. In particular, truancy from the DPR continues to be a problem in its daily operations. To cite one example, the Straits Times reported in June 2002 that only 122 of the 500 House of Representatives members showed up to approve the nominations of two Bank Indonesia deputy governors during a plenary meeting, despite the fact that 251 legislators had actually signed the attendance list. The number of legislators present fell to 87 later in the day, and yet the nominations were passed.6 Other bills have been passed with even fewer members present in the debating chamber. MPR sessions in the last few years, including those to approve important constitutional amendments, have sometimes also been poorly attended. Terrorism Comes to Indonesia The year 2002 in Indonesia will be remembered largely for the massive bomb explosion that occurred on Bali on 12 October 2002 — the second largest terrorist strike after the attacks on 11 September 2001 in the United States. About 200 tourists were killed in the Bali blast — many of them Australians — and with it Bali’s famous tourist industry also died. The terrorist attack dramatically signalled that Indonesia was home to terrorist cells, which was, hitherto, an issue that had not attracted much urgency. Prior to the bombing, beginning in December 2001, both Singapore and Malaysia had arrested members of the Jemaah Islamiyah (JI) network, whom they accused of being linked to the Al-Qaeda network. Evidence of the JI’s attempt to mimic the Al-Qaeda turned up in Afghanistan when video-tapes and plans of targets in Singapore, including the U.S. Embassy and various public utilities, were found during the American operation. Singapore and Malaysia also urged Indonesia to arrest key suspects of the JI, including the operations leader, Riduan Isamuddin, usually known by his nom de guerre, Hambali, and the spiritual leader, Abu Bakar Ba’asyir. While Hambali went into hiding, Ba’asyir continued to head his boarding school in Central Java with impunity. Ba’aysir denied any contact with Osama bin Laden, but was quite frank in admitting that he and bin Laden were working towards the same goals. He told Time magazine the following: “I don’t have any link whatsoever with al-Qaeda, … but if al-Qaeda’s struggle is for the best interest of Islam,

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I support it.”7 The Indonesian Government refused to arrest Ba’aysir on the grounds that there was no evidence to put the cleric behind bars. Indonesia’s removal of the Anti-Subversion Law (the equivalent of the Internal Security Act of both Singapore and Malaysia, used to arrest “subversive” elements without trial, and utilized against JI operatives) was put forward as the reason why the newly democratic Indonesia could not employ authoritarian methods from the past. Some members of the political élite, with Vice-President Hamzah Haz leading the charge, declared that they would not allow Ba’asyir to be taken to jail. In September 2002, the U.S. Central Intelligence Agency (CIA) released information about a terrorist network in Indonesia, apparently as a result of the arrest of a key terrorist, originally from the Middle East but resident outside Bogor.8 The terrorist, Omar al-Faruq, claimed that the JI had plans to assassinate President Megawati and bomb the U.S. Embassy. For a number of reasons — not least of all the CIA’s continuing dark reputation for its involvement in regional rebellions in the 1950s and deep suspicion over its role in the 1965 counter-coup in which more than half a million people died — even moderate leaders refused to accept the evidence presented. Foreign Affairs Minister and career diplomat, Hassan Wirayuda, who is regarded as a moderate, was reported to have remarked in February 2002 that the Cabinet “laugh” at suggestions from other countries that there may be a threat within Indonesia from radical Islamist groups.9 One prominent articulator of the view that reports of radicalism within Indonesia were CIA “rumours” designed to undermine Islam and place Indonesia further under U.S. control was the President’s own sister, Rachmawati Soekarnoputri.10 A leader of the moderate Nahdlatul Ulama, Solahuddin Wahid (brother of the former President of Indonesia), also accused Washington of engaging in “propaganda tricks” over the Omar al-Faruq incident.11 The explosion in Bali on 12 October 2002, which took the lives of about 200 people, marked a sea change within Indonesia, although conspiracy theories still abound about who was responsible. Until evidence emerged of the JI’s culpability, the Indonesian military and the CIA were, according to newspaper sur veys, seen as the most likely candidates. However, the Indonesian Government, even prior to the collation of evidence, made the automatic assumption that this terrorist attack was ultimately the work of the Al-Qaeda. In the immediate aftermath of the attack, the Indonesian Government issued an arrest warrant for Ba’asyir, as evidence was found to detain him, albeit on a charge of being involved in the Christmas Eve bombings in 2000. Although the Laskar Jihad was not, as far as is known, involved in the Bali attack, in October, in a general attempt to rein in radical groups, it was disbanded after government pressure and its leadership put in jail. New laws were also rushed through the legislature that would allow for the detention of a terrorist suspect for up to six months, and for the use of intelligence sources as evidence in court cases. The Indonesian Cabinet has issued its strongest statement yet on

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the problem of terrorism within Indonesia. Even Hamzah Haz changed his rhetoric and stated that the attacks were designed to break up Indonesia and ruin its economic recovery.12 In what was seen as a possible reference to Haz, Co-ordinating Security Minister, Susilo Bambang Yudhoyono, stated that “[t]he government urges that statements that are not objective, that there are no terrorists in Indonesia, should not be repeated again”.13 Bambang most likely delivered this rebuke on behalf of the Cabinet. With Indonesia’s support, the U.S. State Department added JI to its list of international terrorist groups. The Indonesian police investigation into the Bali blast, under the aegis of Indonesia’s most skilled investigator, General I Made Mangku Pastika (Time magazine’s Asian Newsmaker of the Year), was surprisingly fruitful. Australian federal police, playing a support role to Pastika, concluded that the bomb makers in Bali were highly organized and highly skilled. The use of a large amount of C4 explosives led to suspicions of a military connection. There were also a number of different people involved. JI operative, Amrozi, was arrested quite quickly, and he confessed to the bombing. Indonesian police, by early 2003, had managed to detain about forty suspects in the case. One of the suspects, Imam Samudra, told police that he thought Hambali and the JI got their funding directly from the Al-Qaeda — otherwise, he said, it was hard to explain where the finance came from or to explain Hambali’s regular trips back to Afghanistan at the time of the Taliban regime. The Struggle Within Indonesian Islam While those who were responsible for the Bali blast are a tiny minority within Indonesia’s Islamic community, the issue of Islamist terrorism feeds into a wider debate within Indonesia on the proper role for the Muslim faith within politics and society. In particular, in the aftermath of the 11 September 2001 terrorist attacks, followed by the arrest of JI cells in Singapore and Malaysia, it became evident that mainstream Muslim organizations as well as the political élite were reluctant to support the arrest of activists such as Ba’asyir. Indonesia’s largest organizations, the Nahdlatul Ulama and Muhammadiyah, had by the end of 2002 gained enough momentum to jointly criticize the radical fringe groups. Megawati’s government, hamstrung prior to the Bali blast, moved to announce that Indonesia did indeed have a terrorist problem, despite earlier denials. Why has the Megawati administration been so slow to face up to the problem of terrorism? Firstly, the Indonesian élite had resisted strongly any notion of being seen to be giving in to foreign demands. Secondly, politicians in Jakarta have been cautious in acting against Islamic groups, including Megawati herself, whose syncretist Muslim background has been attacked by her opponents. Third, many in Indonesia have denied that Islamist extremists represent much of a threat as they are sometimes seen as victims of the Soeharto era repression. A fourth factor given by the Indonesian Government for the failure to arrest

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Islamist radicals was the abolition of Soeharto’s Anti-Subversion Law that allowed for arbitrary arrest. While this rationale may explain why JI operatives could not be arrested on grounds of lack of evidence, it does not explain why groups such as the FPI (Islamic Defenders Front) and Laskar Jihad, which have committed blatant crimes under the existing legal framework, were not arrested. Lack of will to prosecute in many cases seems a more convincing explanation. During 2002, prominent Islamic clerics from the largest Muslim organizations continued to argue against the implementation of Shariah law in Indonesia.14 Despite the unpopularity of full Islamic law in Indonesia, international media sources continue to react with alarm at its prospect. For example, despite the fact that the implementation of Shariah law is a complete non-starter in the Indonesian Parliament, it was the primary focus of the New York Times feature on the MPR’s 2002 constitutional changes (“Jakarta Rejects Muslim Law and Alters Presidential Voting”, 11 August 2002). By contrast, an article summarizing the same constitutional amendments adopted by the Upper House (MPR) in the Jakarta Post, ran the far more accurate headline, “MPR forces military out, allows people to elect president” (13 August 2002), and made no mention of attempts to include Shariah law. During 2002, the parties that reflect traditionalist and modernist Muslim voting constituencies attempted to forge an alliance for the upcoming election. Press rumours persisted of meetings at the residence of Cholil Bisri, Deputy Speaker of the MPR, in Slipi. The parties that have engaged in talks on this issue are the PKB, PAN, PPP and other smaller Islamic parties. Attempts to bring together Muslim parties as a coherent voting bloc to support an alternative to Megawati face the tremendous hurdles of organizational and personal rivalries. It is unlikely that Wahid would sanction PKB support for such a marriage of convenience given that the other parties involved were instrumental in his removal from office. Regional Issues Presidents Soekarno and Soeharto ruled a very centralized state in Indonesia. With democratization has come a devolution of a great deal of authority to the regions in what must be one of the most substantial reallocation of powers inside a nation-state in modern times. The Habibie regime had passed two laws to allocate a great deal of governmental control to the 400 or so districts (kecamatan and kabupaten) — not the 30 provinces — under laws 22/1999 (regional autonomy) and 25/1999 (fiscal arrangements for regional autonomy). The laws, rushed through hurriedly by the Habibie administration, are poorly worded, contradictory, and inadequate. Approval for foreign investment has become muddled. The first day of January 2002 marked the start of two special arrangements. Aceh and Papua are exceptions in the regional autonomy provisions, as each gets to retain, as provinces, significant revenue from resource exploitation (70 per cent for Aceh, and 80 per cent for Papua). Solutions for dealing with

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Papua and Aceh have been inherited from previous administrations. Despite peace talks in Aceh, it was clear that the military’s new leadership are determined to crush the independence movements at opposite ends of the country, primarily through military means. However, the peace agreement in Aceh at the end of 2002 did strike a positive note. Since the emergence of the Free Aceh Movement (GAM) in the 1970s, 2001 and 2002 were the worst years on record for violence. Ironically, in an era of democratization, war-related deaths have become more frequent, as the security forces and the rebels engaged in indiscriminate killings. A major casualty of the Aceh war was the death of GAM military commander Tengku Abdullah Syafi’i in January 2002 during a military operation (his pregnant wife was also killed). Indonesian negotiators had tried to bring the GAM commander to the negotiation table for some time, but his fear — apparently not unfounded — of being killed had prevented this. Despite concerns that this might make the GAM more obstinate, on 9 December 2002, the Republic of Indonesia and the Free Aceh Movement signed a peace accord, the culmination of several years’ effort by the Henri Dunant Center, and some prominent officials such as U.S. mediator Anthony Zinni, and former Thai Foreign Minister, Surin Pitswan. A “Humanitarian Pause” in Aceh, agreed to in 2000, did not hold, as both sides engaged in tit-for-tat violence that shredded the agreement. What the latest peace accord stipulates is a cantonment of GAM forces, and their gradual disarmament, while a number of government units will be withdrawn in return. Two important concessions occurred for this agreement to be signed. The GAM accepted regional autonomy (although without completely abandoning the demand for full independence), while the Republic of Indonesia finally acquiesced to a long-standing GAM demand for foreign observers to monitor the agreement — 150 monitors have now entered Aceh, the core of which are military personnel from Thailand and the Philippines. As with Aceh, Papua (formerly Irian Jaya) was made a Special Autonomous Province from 1 January 2002, and the name change to “Papua” was formalized. Nevertheless, unrest continued in the separatist-minded province, especially when evidence grew that it was in fact members of the military’s Special Forces (Kopassus) that had killed independence leader, Theys Hilo Eluay, in November 2001. Police investigators charged members of a local Kopassus unit with the murder. This case sparked enormous international interest, partly because of Theys’ high profile, and partly because of the clearest evidence yet of military involvement in the assassination of an independence leader. In June 2002, Dani tribal chief and highlands’ leader, Yafet Yelemaken, died from what respected Papuan human rights group ELSHAM claimed was a poisoning.15 Another highland leader, and chair of the pro-independence Koteka Tribal Assembly, Benny Wenda, was arrested at about the same time and remains subject to arbitrary detention (albeit on trumped-up charges) and torture. A number of demonstrators have also been killed since late 2000,16 and local NGO (non-governmental organization) groups and international observers

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have either hinted at, or directly pointed to, security force involvement in these killings. In August, the deaths of five people (including two U.S. citizens) near the Freeport mining complex caused more trouble — this time with an international dimension — when it emerged that the military had, in the words of the Indonesian police and FBI (Federal Bureau of Investigations) officers sent to the scene, tampered with evidence. The military produced the body of the “assailant” only to have police confirm that the person had been killed some time prior to the attack. Suspicion once again fell on the role of the military in violence in the province. In the troubled areas of Ambon and Poso (Central Sulawesi), communal violence was at far lower levels than in previous years. On 20 December 2001, an agreement was signed in Malino, South Sulawesi. This largely brought a relative peace to Poso, but there were isolated incidents of communal violence throughout the year, including a bomb blast on 5 June, which killed four people and injured a number of others. In August, 2,000 people were forced out of their homes in Poso after renewed violence that briefly threatened to undermine the agreement. Equally alarming was a bomb blast in a McDonald’s restaurant and a car dealership in Makassar, South Sulawesi, in December 2002 that appeared to be an attempt to polarize communities once more. After the blast, suspects were arrested. These suspects, it turns out, were also linked to those responsible for the Bali blast. Those arrested in this case had plans to target churches in Sulawesi on Christmas Eve (echoing the notorious wave of church bombings on Christmas Eve 2000). On 12 February 2002, the Malino II peace declaration was signed by seventy Muslim and Christian representatives from Maluku, in an attempt to replicate the Poso peace deal. Ambon, the scene of a bitter conflict that has taken 5,000 lives, has seen the fighting die down, but incidents still occur. For example, in July an explosion near Ambon’s Patimura University, in the Sirimau subdistrict (a Christian area), injured fifty-three people. Civil-Military Relations The year 2002 further demonstrated the tendency for the Megawati administration to appease military interests. The Indonesian Government showed no signs of attempting to reform the military, or abolish its territorial commands. Senior military figures, responsible for atrocities in East Timor, were sheltered from the law, and hardliners within the army were promoted to positions of prominence. The decision by Parliament to remove the thirtyeight seats reserved for the military represents a very minor step forward. Throughout much of 2002, trials under Indonesia’s Ad Hoc Human Rights Tribunal for the destruction of East Timor were conducted in Jakarta. Eighteen senior Indonesian officials, including three army generals and the former East Timorese Governor, Abilio Soares, were indicted for the violence that engulfed East Timor in 1999. Potentially, they could have faced the death penalty. A number of senior military personnel took the witness stand in the trials. By

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and large, Indonesian military personnel all gave variations on the theme that the military had done its best to prevent the violence. For example, the former military commander of East Timor, Brigadier General Tono Suratman, told the hearings in April 2002 that he had worked hard to stem the violence, claiming that his forces had prevented many deaths. He cited the fact that no foreign observers were killed as evidence. In May, infamous militia leader, Eurico Guterres, dropped the biggest bombshell when he told the court that his organization had been funded by Indonesian government sources. Only Soares, as the convenient scapegoat, was convicted by the court. The trials were roundly condemned as a sham, bringing the case of justice for crimes in East Timor no closer to closure. The U.S. State Department said that in August 2002 the U.S. Government was “disappointed” in the trials, particularly in the failure to utilize evidence that could have been provided by the United Nations and others outside Indonesia. A reshuffle of the military’s top brass saw the army retake the commanding position. Lieutenant General Endriartono Sutarto was installed as the Armed Forces (TNI) Commander in June 2002, breaking with a decision by Megawati’s predecessor, Wahid, to rotate the position around the three service branches. Outgoing TNI commander, Admiral Widodo Adi Sutjipto (the first chief outside the army in three decades), had failed to undertake reforms to the military, and this probably demonstrates the ongoing power of the army. Not only had the territorial system remained intact, but episodes of regional violence had gone unchecked under his watch — notably the failure of the security forces to prevent the Laskar Jihad from moving into Ambon. Endriartono’s promotion marked the emergence of some hawkish leaders within the armed forces. The head of the army’s Strategic Reserve (Kostrad), Lieutenant General Ryamizard Ryacudu, was promoted to head of the army. Both Endriartono and Ryamizard expressed little patience for peace negotiations in Aceh, and threatened to widen the war. One of the most controversial promotions went to Major General Sjafrie Sjamsoeddin, who assumed the important post of TNI spokesman — Sjafrie Sjamsoeddin, as one of the key suspects for the 1999 violence in East Timor, carries the baggage of international notoriety. The well-known police-military rivalry created one of the more serious confrontations between the two in 2002. On 29 September, five policemen and three civilians were killed, and twenty-seven others injured, when a hundred soldiers from an airborne battalion attacked a police station in Medan to release a colleague who had been arrested for selling drugs. The battalion had to be disarmed completely, and the army issued a formal apology. Foreign Affairs Indonesia’s foreign relations were dominated by the issue of international terrorism, particularly after the Bali bomb blast. Co-operation with the United States increased on a number of fronts, as Indonesia’s importance to Washington

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has grown — even prior to the Bali blast. The Al-Qaeda terrorist attacks on the United States expedited a plan by the Bush Administration to try to restore military-to-military links. The Bush Administration faces a difficult task in finding a suitable means of assisting the Indonesian security forces, while working with the Leahy Amendment — which forbids the U.S. military from training with units guilty of human rights abuses — and the political sensitivities of Congress. The deaths of Americans at Timika, the lack of progress on crimes in East Timor, and ongoing human rights abuses in Aceh and Papua are all significant demerit points against the TNI in the eyes of many Congressmen and women. While Indonesian officials would welcome military-to-military relations, there are elements who resent the strings of foreign pressure that may be tied to it. Endriartono stated that while the TNI was still in need of foreign assistance, particularly given the difficulties of securing equipment for the armed forces, he also insisted that such aid “should not involve interference in our national affairs”.17 In early August 2002, U.S. Secretary of State, Colin Powell, visited Indonesia and announced aid of US$50 million over three years to assist Indonesia in counter-terrorist operations, but little of this money had reached Indonesia by the end of 2002. Most of the money was tagged for assistance to the police. However, the money was not given without reservation. In the words of the U.S. Ambassador, Ralph Boyce: “If this [wider military-to-military relations] comes to pass, this does not represent a clean bill of health for past TNI [Indonesian military] actions which continue to be of concern to us.”18 Yet strengthening ties with Indonesia has acquired new salience in the aftermath of the Bali attack. That said, the dissonance between Indonesia and the United States concerning the “Global War On Terrorism” remains obvious. Megawati opposed America’s counter-strike in Afghanistan, and Indonesian officials are now urging the United States to seek a peaceful solution, preferably worked through the United Nations, to the Iraqi crisis. Public opinion within Indonesia is so opposed to U.S. action in Iraq that there is no prospect that the Megawati government could support it. From November 2002, the U.S. State Department took the unusual step of purchasing television advertising slots for two-minute commercials featuring Muslims in the United States as an effort to undermine growing anti-Americanism in the country. While the Bush Administration’s doctrine of “pre-emption” has raised some eyebrows, it was Australia’s Prime Minister, John Howard, in announcing that Australia would consider the same policy course, that drew the most criticism — not least of all because Indonesia was presumed by Indonesian leaders to be the target. However, Vice-President Hamzah Haz, together with Minister of Foreign Affairs Hassan Wirayuda, have both said that they see Howard’s talk of a preemptive strike as merely “rhetoric”. Indonesia did strongly protest the decision by the Australian Government to arrest a number of Indonesian nationals thought to be linked to the JI.

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The Bali bomb blast dominated regional forums too. In the immediate aftermath of the bombing, the APEC meeting in Mexico was subsumed under discussions of the Bali incident. The Annual Summit Meeting of ASEAN in Phnom Penh, held in November, also heavily featured the Bali issue, as the organization focused on what is arguably its greatest modern challenge. Indonesia, prior to these events, had signed several memoranda with ASEAN on combating terrorism. Indonesia’s relations with its immediate neighbours were rocky from time to time. East Timor’s independence celebrations were to spark a major controversy within Indonesia’s body politic. As President Megawati prepared to visit East Timor for independence celebrations, on 20 May 2002, a large number of senior politicians in Jakarta publicly opposed the state visit, including the Speakers of the Lower and Upper Houses, Akbar Tandjung and Amien Rais. Rais in particular did somersaults over the issue — in 1999 he had stated he would support the outcome of the referendum, in 2002 he first opposed an official visit by Megawati, but a week prior to Megawati’s departure he announced that it was her right to make the visit. Yet Megawati’s one hour visit to Díli on 20 May, in the company of seven of her ministers, became notable for another reason. The TNI, in a very public flexing of its muscles, announced that to secure the President’s safety it would place, on standby, a joint task force of 2,000 troops, six warships, amphibious tanks and jet fighters at Kupang, West Timor. This was explained as a necessary precaution, or in the inimitable words of a regional commander, one Colonel Muswarno Musanip, “Not even an ant will touch her”.19 Yet the implications were clear for all the world to see — the military was displaying its power. Public pressure from Singapore to arrest JI activists caused a nationalist backlash. However, the apparent linking of Islamic orthodoxy with terrorism probably drew the greatest ire. Singapore’s Senior Minister Lee Kuan Yew created a furore in Indonesia when he delivered a speech in which he lamented the growing piety of Islamic observance in Southeast Asia generally: Over the last three decades, as part of a world-wide trend, Muslims in the region, including Singapore, are becoming stricter in their dress, diet, religious observances, and even social interaction, especially with non-Muslims. Increasingly Muslim women will not shake hands with males. The generation of convivial and easy-to-get-along-with Muslim leaders in the region has given way to successors who observe a stricter Islamic code of conduct.20

However, despite these hiccups, Indonesia’s relationship with Singapore remained quite good. A bitter spat with Malaysia also developed over the issue of Indonesian workers in Malaysia. Malaysia announced a 31 July deadline for illegal immigrants, and under the newly amended Immigration Act, overstayers could be subject to corporal punishment, fined up to RM10,000, or jailed for a

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maximum of five years. In August 2002, Malaysia made good on its promises and began to crack down on illegal Indonesian workers, sentencing four Indonesians to two lashes of the rotan cane and imprisonment. The punishments, the most severe ever meted out in Malaysia on Indonesian overstayers, caused an attempted exodus of tens of thousands of Indonesian nationals. Many were stranded in border areas unable to afford the travel expenses of getting back to their hometowns. In Indonesia, there was a lot of public anger over this, and even the Transmigration Minister, Jacob Nuwa Wea, stated that he was seriously considering resigning because he had been unable to negotiate a better deal for the Indonesian workers. Protesters in Jakarta tore down the Malaysian Embassy gate, while some Malaysian travellers appeared to get additional attention from Indonesian customs officials. In late August, at the height of the crisis, Malaysian Foreign Minister, Datuk Seri Syed Hamid Albar, blamed Amien Rais for being too emotional in making strong statements criticizing the Malaysian Government and whipping up Indonesian public sentiment. Syed Hamid advised Rais to tell his countrymen to enter Malaysia “legally”. In the end Malaysia was forced to lift a ban on Indonesian workers when it faced a crisis of its own in the construction industry. Around 90 per cent of construction workers are Indonesian. Another diplomatic issue with Malaysia occurred when the International Court of Justice awarded the contested islands of Sipadan and Ligitan to Malaysia in a 16-1 decision. The Indonesian Government expressed disappointment at the decision, but said it would abide by it. In 2000, during a visit to the ASEAN Summit in Singapore, President Abdurrahman Wahid had announced that a new regional body should be formed to accommodate co-operation with states to the east of Indonesia, including East Timor, Papua New Guinea, and Australia. This was not the first time that Wahid had suggested a new forum based on unlikely collections of countries, but this time Australia sought to follow up on the idea. In 2002 the idea took shape. The six member countries of the “Southwest Pacific Forum” — Australia, East Timor, Indonesia, New Zealand, Papua New Guinea, and the Philippines — held their first annual meeting in Indonesia in August 2002. Indonesian Foreign Minister, Hassan Wirayuda, gave the press the following rationale for the body: “The geographic reality tells us that we live with our neighbours and there is a need to closely interact with each other regarding certain issues of mutual concern.”21 Wirayuda listed those areas of “mutual concern” as co-operation in security, border issues, transnational terrorism and crime, economic issues, and “culture”. The Economy While Megawati’s accession to power in 2001 had a dramatic impact on improving market confidence at the time, Indonesia’s economy continues to have gloomy prospects, albeit with a few bright spots. Outstanding issues of a colossal bank debt and the failure to privatize assets remain. A target to sell off

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twenty-five state assets was not realized. Yet Indonesia drew praise from both the International Monetary Fund and the World Bank as these lending institutions attempted to put a positive spin on the situation. Just prior to the IMF’s disbursement of US$360 million in September, the Fund praised the Megawati government for its reform programme. It also noted a stable rupiah (the currency hovered around Rp9,000 to the U.S. dollar for most of the year), relatively low inflation and interest rates, and the government’s ability to restrain budget spending to remain within the projected 2002 budget deficit of 2.5 per cent. However, the IMF noted that the banking industry and the overall bureaucracy needed more reforms. With increasing pressure from Parliament to end the relationship with the IMF, its congratulatory message should probably be seen in that light. However, if the Indonesian Government withdrew itself from IMF tutelage this would have quite negative consequences for investment and the desire of other lenders to consider future aid packages. In January 2003, the World Bank noted that some aspects of macroeconomic management were praiseworthy.22 According to the World Bank, Indonesia’s public debt has declined from 100 per cent of the gross domestic product (GDP) to 70 per cent in 2002, while the budget deficit will fall to below 1 per cent in 2003 — the budget deficit, at 5 per cent in 2000, was scheduled to be reduced annually according to a framework agreed to with the IMF. The declining budget deficit is largely the result of subsidy removal. The Megawati government attempted, in January 2003, to reduce subsidies on utilities and kerosene — the latter having a more direct impact on the poor — but reversed the decision in the face of mounting protests (Megawati even cancelled a visit to Sulawesi because of public demonstrations). The World Bank estimates that Indonesia’s GDP growth will be 3.4 per cent in 2002, marking no change over 2001, largely as a result of consumption, and bolstered by wage increases and greater liquidity in a recovering banking system. However, these positive indicators were cold comfort for a country reeling from the news, also noted in the World Bank report, that, according to government figures, foreign investment declined by 35 per cent, while domestic investment was down a massive 57 per cent in the year 2002.23 While corruption, an inadequate legal system, and labour unrest were the factors that had dissuaded investment in the past, the confusion surrounding regional autonomy probably accounts for a further fall in investment levels for 2002. This will have severe opportunity costs for growth and employment rates. A forecast of growth is not enough to absorb the nearly 2 million Indonesians entering the work-force every year. The Bali bomb blast will also have an impact — although the World Bank report claims that this factor was mitigated to some extent by the Indonesian Government’s “quick actions on security”, which, it is claimed, saw financial markets return to pre-Bali levels within a month. Yet the Bali bombing has had its economic impact by increasing poverty. The World Bank report mentioned above estimates that the Bali bomb blast, and the resulting economic slowdown, may have placed another million people under the poverty

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line. Apart from the possible subsidy removal, and the Bali blast, the floods that affected Jakarta in February 2002 saw food prices rise, which affected a great number of households near the bread-line. In April 2002, the troubled Indonesian Bank Restructuring Agency (IBRA) got its seventh chairman since its establishment after the financial crisis. Syafruddin A. Temenggung replaced the controversial I Putu Gede Ary Suta, who was accused of favouring conglomerate corporations. The IBRA still has under its aegis more than Rp600 trillion (c. US$63 billion) worth of state assets. These assets were taken over to bail out local banks in the wake of the financial crisis. The sale of these assets is key to revitalizing the economy, yet progress has been extremely slow. On the issue of exports, Indonesia’s stronger rupiah (compared with pre-July 2001 levels) and a global trade slump meant that export returns were not the primary driver of Indonesia’s modest growth. Although still an open economy on the whole, Indonesia in 2002 witnessed some evidence of creeping economic nationalism, with tariffs and non-tariff barriers being erected on sugar, cloves, textiles, and rice. Corruption Despite the end of Soeharto’s kleptocracy, corruption in Indonesia remains at gargantuan levels. It continues to be a serious drag on economic recovery. Even the Indonesian President has weighed into the debate on this issue on a number of occasions, calling on Indonesians to get rid of the problem. In December, Megawati stated that corruption in the legal system was worse than in Soeharto’s time.24 The Laksamana newspaper repeated a widespread rumour that Megawati had failed to match these words with a crackdown on corruption because of the business activities of her husband, Taufik Kiemas. Yet the theme of corruption was one of the few issues that Megawati spoke on with some consistency. Key Islamic scholars, such as Azyumardi Azra, Syafi’i Maarif, and Nurcholish Madjid, also delivered broadsides on the issue. In April 2002, a survey undertaken by the Partnership for Governance Reform, revealed that almost two-thirds of sampled Indonesian households had fallen victim to graft by government officials. Replies from the respondents ranked the traffic police as the most corrupt body, followed by the customs department, and the judiciary. More than three-quarters of businesses reported that they paid bribes to public officials as a matter of course.25 State Minister of Administrative Reforms, Feisal Tamin, pitched into the debate by putting a number on the problem — according to the Minister, a massive three million of Indonesia’s five million civil servants nationwide were “unproductive, unprofessional, and corrupt”.26 Despite the rhetoric of political and civic leaders, few gains were made in combating the corruption problem. At higher levels, the public was probably not surprised to hear that Soeharto’s convicted son, Tommy, was not having his lifestyle cramped in jail. Tempo magazine revealed that Tommy Soeharto,

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sentenced to fifteen years in jail, had made a life for himself in Cipinang Prison that would make “[l]egendary criminal Al Capone … green at the gills with envy”.27 It came to light that Tommy was free to meet anyone he liked and continued to run his businesses — Tempo even claimed that he could appoint his own guards. The other cause célèbre of 2002 was the arrest and conviction of Golkar leader and DPR speaker, Akbar Tandjung, who, pending an appeal, was able to stay out of jail and retain his political posts. Akbar was convicted for siphoning Rp40 billion from Bulog, the state logistics agency. The assumption of the prosecutors was that the money was probably used for Golkar’s 1999 election campaign. The funds were directed to a little-known foundation called Raudlatul Jannah, apparently for charity work. Akbar admitted in court that there was no formal contract with the foundation, only a verbal agreement. This is a remarkable admission given the enormous amount of money involved. The Sutiyoso Affair The accusation that Megawati has been playing “traditional politics” was no more evident than in the reappointment of Jakarta’s governor, in this case supporting a man who had been partly responsible for mobilizing a mob to attack Megawati’s headquarters and removing her as PDI head in 1996. Megawati’s support of a second term for Jakarta’s governor, Major General (ret.) Sutiyoso — also the former army commander of Jakarta — was the incident during 2002 that most alienated her supporters. Sutiyoso carries a reputation for brutality from his army background, and allegations have been made that he continues to use thugs to “clean-up” the city. In February 2002, when 300,000 people were forced out of their homes by serious floods, millions of dollars in foreign assistance were not distributed by the city authorities and are thought to have vanished. Adding further to the mystery was the fact that in supporting Sutiyoso, Megawati and the central committee of the PDI-P passed over potential candidates from their own party, including Jakarta chapter chairman, Tarmidi Suhardjo, who vowed to continue his candidacy anyway. Some of the PDI-P council members publicly expressed their disgust at having to back the man who was partially responsible for the deaths of PDI-P activists during the attack on PDI headquarters in 1996. During September, protestors took to the streets over the reappointment of Sutiyoso. With thousands of demonstrators outside, and police firing blanks, tear gas and water cannons, Sutiyoso, together with his chosen candidate for vice-governor, Fauzi Bowo, won a second five-year term with a narrow 47 of the 85 votes cast by city councillors. One of the unsuccessful candidates revealed that he had paid Rp200 million to forty legislators, with the promise of another Rp2 billion if he was elected,28 leaving commentators to speculate on what sort of inducements the winning candidate may have had to offer. The incident had shades of Soeharto’s New Order about it, whereby presidential pressure was exerted to back the candidature of a military figure to an important gubernatorial post.

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Conclusion In October 2002, President Megawati received former South African President, Nelson Mandela, for talks at the State Palace. During a press conference, Mandela mistakenly referred to Megawati’s father as “Soeharto” — not once, but twice — rather than founding president “Soekarno”. This slip of tongue accords with a common jibe among student activists who sometimes refer to the President as “Megawati Soehartoputri”. Even certain prominent members of her own party have turned against her. Mochtar Buchori, a well-known PDIP Member of Parliament and former adviser to Megawati, described the President in a press interview as “authoritarian and aloof”.29 The direct comparison to Soeharto, in many senses, is not completely fair, as Megawati presides over a country, and a political system, that has changed vastly from the authoritarianism of Soeharto. Yet Megawati has demonstrated during her time in office to date an inherent conservativism in most matters of state. Given the array of problems facing Indonesia, and the inability to make real progress during 2002, it is likely that the year 2003 will see just as much uncertainty in the country as the preceding year. One issue that has received more genuine attention, however, is that of terrorism — an issue that came to dominate the agenda by late 2002. The Bali bomb blast has forced the Megawati government, and mainstream Muslim organizations, to take the problem of Islamist terrorism seriously within Indonesia.

NOTES 1. The author would like to express his appreciation for helpful comments on this chapter by Richard Baker (East–West Center) and Professor Ian MacFarling (Asia– Pacific Center for Security Studies). The views expressed in this chapter are those of the author and do not reflect the official policy or position of the Asia-Pacific Center for Security Studies, U.S. Pacific Command, the U.S. Department of Defense, or the U.S. Government. 2. One clear manifestation of this is her practice of not holding press conferences. See Richard W. Baker, “Indonesia’s Political Evolution Over the Next 5–10 Years”, Project Asia, September 2002, p. 5. 3. “Hamzah denies any deal with detained Laskar Jihad chief”, Jakarta Post, 8 May 2002. 4. Golkar party member, Marwah Daud Ibrahim, found herself in hot water after she suggested publicly that Akbar should stand down. Although she was not fired, she was sanctioned by her party. 5. Note that Shariah law is often more lightly interpreted in Southeast Asia than in some Middle Eastern contexts. In Indonesia, Shariah has revolved around marriage, divorce, and inheritance law, while some provinces, most notably Aceh, have attempted to extend this to female attire and a ban on alcohol. 6. “Many Indonesian lawmakers skip Parliament”, Straits Times, 17 June 2002. 7. “Confessions of an al-Qaeda Terrorist”, Time, 15 September 2002. 8. Ibid. 9. Mark Steyn, “They want to kill us all”, Spectator, 19 October 2002. 10. “Rachmawati: ‘Rumors Disseminated by CIA Are Like Rumors Disseminated Prior to G30S/PKI’”, Tempo Interactive, 20 September 2002.

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11. Raymond Bonner, “Indonesians Distrust Report by C.I.A. on Qaeda Suspect”, New York Times, 24 September 2002. 12. “Attacks aimed to break up Indonesia, says Hamzah”, Straits Times, 24 October 2002. 13. Ibid. 14. Perhaps most vocal was Syafi’i Maarif, head of the country’s second largest Muslim organization, Muhammadiyah. 15. “Senior WP chief poisoned”, Berita Irian News, 24 June 2002. 16. See U.S. State Department, Country Report on Human Rights Practices for Indonesia, 2001. 17. “Mega installs Endriartono as TNI chief to replace Widodo”, Jakarta Post, 8 June 2002. 18. “U.S. Ambassador: Aid To Indonesian Military To Support Reform”, Associated Press, 7 August 2002. 19. “Jet fighters, warship to accompany Megawati to East Timor”, Agence France Presse, 17 May 2002. 20. See “The East Asian Strategic Balance After 9/11”, Address by Senior Minister Lee Kuan Yew at the First International Institute for Strategic Studies Asia Security Conference on Friday, 31 May 2002. ; and “Indonesia says rift with Singapore due to differing perceptions”, Jakarta Post, 25 February 2002. 21. “Six countries agree to set up Southwest Pacific Forum”, Agence France Presse, 9 June 2002. 22. “Indonesia Maintaining Stability, Deepening Reforms”, World Bank Brief for the Consultative Group on Indonesia, Report No. 25330-IND, January 2003. 23. “RI does well in macroeconomy, poor in investment: World Bank”, Jakarta Post, 17 January 2003. 24. “Mega Admits Legal Graft Worse than Ever”, Laksamana.net, 17 December 2002. 25. “Two-thirds of Indonesians are victims of corruption, survey shows”, AFP, 12 April 2002. The report was based on a survey of 1,250 households, 650 public officials, and 400 businesses in fourteen provinces. 26. Bambang Nurbianto, “City agencies overstaffed, but performing poorly”, Jakarta Post, 26 November 2002. 27. “Business By Appointment Only”, Tempo, 7 May 2002. 28. Marianne Kearney, “Business as usual in Indonesia poll: Shades of Suharto as Megawati’s man in Jakarta re-elected despite bribery claims and missing millions”, South China Morning Post, 9 October 2002. 29. Anton Alifandi, “Analysis: Megawati’s first year”, BBC Indonesian Service, 23 July 2002.

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INDONESIA The New Regional Autonomy Laws, Two Years Later

Gary F. Bell

I. INTRODUCTION Indonesia is a fascinating amalgam of ethnicities, languages, cultures, and religions, united by history, by a common national language, by political will and sometimes by sheer force, and spread over thousands of separate, distinct, and often distant islands. That such a country would have a high degree of regional autonomy would seem to make sense but surprisingly the regions in Indonesia until recently did not have much autonomy and were administered mainly by the central government. This led to a lot of resentment towards the centre and particularly towards Java and the Javanese who dominate in politics and in the central government. Addressing a call for more regional autonomy, the Habibie government passed new laws that promised the broadest autonomy to the regions and the Wahid government adopted regulations under the new laws. The laws and regulations came into force on 1 January 2001. This decentralization has been referred to by some as the “Big Bang” — Indonesia moved from a government structure that was highly centralized to one of the most decentralized in the world (at least on paper) and did so in about 27 months from the People’s Consultative Assembly (MPR) decree opening up the regional governance reform in October 19981 until the coming into force of the laws on 1 Januar y 2001. Many believe that no countr y has ever decentralized so much so suddenly. This article will look at the provisions of the new regional autonomy laws. It will, in particular, examine the political context that led to their adoption, their contents including their shortcomings, the many difficult tasks faced during the implementation of the laws over the past two years, and the possibility of amending the laws. It will then look very briefly at the separate autonomy laws adopted for special regions. I have elsewhere made a detailed legal analysis of the laws and regulations just before their coming into force2 and also written on the legal consequences of the regional autonomy laws on regional minorities in GARY F. BELL is Associate Professor at the Faculty of Law of the National University of Singapore. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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Indonesia.3 Jurists should refer to these other articles for a more detailed legal analysis. The purpose of this article will be to explain some of the legal difficulties generated by the law to non-lawyers and to give a more general overview of the law and its early implementation over the last two years — though still from a jurist’s point of view. Admittedly, a jurist’s point of view is not the only way of looking at the regional autonomy laws and other points of view might shed a better, or at least a more complete light on the topic. Nonetheless the legal point of view must be taken into account in analysing many consequences of the regional autonomy laws.

II. THE NEW REGIONAL AUTONOMY LAWS A. The Political Context that Led to their Adoption Regional governments are not a new phenomenon in Indonesia. There were regional governments in the provinces (propinsi), regencies (kabupaten), and villages (desa) (to name the main levels of government) and there were laws setting up and regulating these governments.4 In reality, however, these local governments were not democratic and were politically controlled by the central government. They behaved more like implementers of central orders than as autonomous governments. This led to recriminations in the regions and demands for autonomous and democratic regional governments. In particular, there was a sense that the regions, particularly resource-rich regions, were not making sufficient profits from their own resources and that the central government was unjustly exploiting them. Following the fall of Soeharto in 1998, Vice-President Habibie, of the same Golkar Party, took over the presidency. He wanted to be seen as a reformist and did put in place many new laws. One of the reforms he promised was regional autonomy. At the time of this promise, Indonesia was in turmoil, and East Timor, Aceh, and Irian Jaya were fighting for independence. Promising more autonomy was seen by some as the only way to keep Indonesia together. A promise of more regional autonomy was not surprising since Habibie himself was not originally from Java and the promise could boost support for Golkar outside Java in the then coming elections. B. The New Law and the Constitutional Amendments The two main laws relating to regional autonomy were adopted in 1999 and came into force on 1 January 2001. The first is the Law on Regional Governance commonly referred to as the Regional Autonomy Law.5 The second is the Law on Fiscal Balance between Central and Regional Governments (“Fiscal Balance Law”).6 In this essay, the focus will be mainly on the Regional Autonomy Law and its implementation.

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Before going into the details of the new laws, it should be pointed out that although the powers of regional governments have increased drastically and their role has changed, the different levels of government remain essentially the same. At the top is the central government, which the law simply refers to as the government (pemerintah). Ever y other level of government is referred to as a regional government (pemerintah daerah). There are many levels, but the only important ones for our purposes are the provinces (propinsi or provinsi), headed by a governor (gubernur); and one level below them, either the regency (kabupaten), in rural areas, headed by the regent (bupati) or the city (kota), in urban areas, headed by a mayor (walikota). Then, at the very local level in rural areas are the villages (desa). For our purposes, we need not describe the other levels of government between the regency and the village. It should be pointed out that the term kabupaten is sometimes translated in English as “district” rather than “regency”. Both English terms refer to the kabupaten, and there is therefore no difference between a regency and a district. As we will see, if the different levels of regional governments have not changed, the relationship between them is now drastically changed. The governments at the regency or city level are now autonomous and are therefore in principle independent from the provincial and central governments. 1. Constitutional Status of the Regional Autonomy Laws Notwithstanding the incredibly broad devolution of powers to the regions, the Regional Autonomy Law does not adopt the concept of federalism. It adheres to the principle of the “Unitary State of Indonesia” enshrined in article 1 of the Constitution7 and restated in the newly amended article 18 of the Constitution relating to regional autonomy.8 Federalism would involve the recognition of a central state and of regional states with constitutionally protected powers which the central government cannot reduce without amending the Constitution. Such is not the case under the Regional Autonomy Law even though the Constitution now mentions regional autonomy as a constitutional principle. The new article 18 of the Constitution adopted as part of the second amendment in August 2000 states that: “regional administrations can put in effect the broadest autonomy, except in governmental matters that by virtue of legislation are defined as matters for the Central Government.”9 The Constitution therefore leaves the definition of the powers of the regions to legislation (undangundang) adopted by the Central Parliament. Unlike in a federation, the powers of the regional governments can be modified by simple legislation from the central government — there is no need for a constitutional amendment. What is clear, however, from article 18 of the Constitution is that unless a law specifically assigns a power to the central government, then that power belongs to the regions. In legal terms we would say that the residual powers belong to the regions.

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2. The Autonomy Laws, their Objectives, and their Shortcomings The Confusing Division of Powers In a manner consistent with the second amendment, the Regional Autonomy Law gives the residual powers to the regions. Interestingly it states in article 11(1) that “the powers of Regencies and Cities shall include all government powers other than the powers that are the object of an exception in Article 7 [powers of the Central Government] and those regulated by Article 9 [powers of the province]”.10 It is therefore not the provinces that inherit the residual powers and most of the powers devolved but the regencies and cities. It is indeed surprising that such wide powers are transferred not to the 30 provinces but to the 350 regencies and cities.11 For example in Bali, the broadest government powers were granted to the eight regencies and one city of Bali rather than to the provincial government of Bali. The fear seems to have been that provinces could be politically more difficult to control and may use their new powers to foster dreams of independence. The powers transferred are indeed very broad. Basically the regencies and cities have powers over everything that is not by law assigned to the central government or the provinces, and frankly, very little is left to the central government or the provinces. The problem, however, is that the provisions dividing the powers between the different levels are very unclear and confusing. The central government powers are limited by article 7(1) of the Regional Autonomy Law to “responsibilities for foreign affairs, defence and security, the administration of justice, monetar y and fiscal matters, religion and responsibilities in other sectors”. This is an incredibly short list. It should be added however that the central government remains entitled to make policies in “other sectors” which article 7(2) further defines as including policies on national planning and control of national development at a macro level, funds for fiscal balance, the state administrative system and state economic institutions, the development and the empowerment of human resources, the efficient use of natural resources along with strategic high technology, conservation and national standardisation.

It remains nonetheless a very short list. The main problem however, especially on the list in article 9(2), is that it will be very difficult to apply this division of powers in practice. How can the central government make “policies on national planning” without encroaching on many powers now devolved to the regions (education, health, the environment, natural resources, etc.)? The provincial powers are even fewer. Article 9(1) states that the powers of the provinces include “the powers in government sectors that cross the borders of regencies and cities along with the powers in other specific government sectors”. There is no other definition in the law of what constitutes a cross-border government sector. In fact this is very confusing since many responsibilities clearly assigned to regencies and cities (public works and the

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environment for example) could arguably be cross-border sectors (intercity roads, environmental impact beyond a regency). The division of powers is therefore not clear. Even less clear is what is included in “other specific government sectors” over which provinces have jurisdictions. There is no list of such sectors except in the elucidation to the law. The wisdom of legislating a list of sectors through a commentar y or elucidation rather than in the law itself is questionable — the elucidation is not a binding source of law. However, and even though elucidations are given a lot of weight in interpreting statutes in Indonesia, the elucidations cannot contradict the clear text of the law. For example the elucidation gives “environmental control” as an example of a sector that is provincial, contradicting article 11(2) of the law which clearly states that the environment is a matter for the regencies and cities. The law should prevail. To add to the confusion, article 9(2) mentions that the provinces have jurisdiction over “the powers which have not, or have not yet, been implemented by regencies and cities”. This is a de facto jurisdiction — to know whether a certain power belongs to the regency or the province one would have to check whether the regency has exercised that power. If not, then that power belongs to the province, at least with respect to that regency — if other regencies in the same province have exercised that power, then they would have jurisdiction. This is bound to be a very time-consuming and error-prone process even if one were to check only the “recognition of powers” which the ministry of home affairs has issued for each specific regency (see below). The Confusing Regulations and the Lack of Co-ordination with Existing Laws Given that the law is not entirely clear as to the division of powers, one would have hoped that the government regulations authorized by the law and adopted before its coming into force would have been more illuminating. Unfortunately, the main regulation on the division of powers only added to the confusion.12 Drafted by sectors that seem to correspond to existing ministries (or vested interests), it reads as if the different ministries had decided to make a last ditch effort to keep their powers and prevent their transfer to the provinces. The law was adopted so quickly that there was insufficient time to review most of the national laws. Since so many powers were to be transferred to the regions, many of the national laws should have been amended to reflect the more limited powers of the central government. For example, the mining law that provides for mining licences should have been amended before the coming into force of the regional autonomy law so that those applying for a licence know that they now had to deal with the provinces. Due to lack of time the many amendments required were not adopted and therefore many national laws still read as if the central government has most powers, thus adding to an already confusing situation.

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C. The Implementation of the New Laws Many observers had predicted the worst on the coming into force of the Regional Autonomy Law. As we will see, many of the dire predictions did come through. The situation is far from perfect and much work will need to be done to improve the laws and their implementation. Yet, one must admit that in some respects the transfer of powers went much more smoothly than had been expected. 1. Administrative Success The most successful aspect of the implementation has been the transfer of more than two million civil servants as well as about 16,000 facilities (schools, hospitals, etc.) to the regions.13 There were some difficulties here and there, but overall it has gone rather smoothly considering the magnitude of the task. The transfer of funds has also to a large extent been successful. There has of course been a decentralization of corruption, and a series of abusive regional taxes have been imposed to raise local revenues. The regions do complain that they do not have enough funds to cope with their new responsibilities, which might be true, but is not convincing coming from the often corrupt local officials. Nevertheless the transfer of funds from the central to the regional governments did occur and most government facilities (schools, hospitals, etc.) are open and functioning. With very few exceptions, there has been no serious disruption of service. It is amazing that the transfer went relatively smoothly, and the authorities must be congratulated for proving wrong the critics, including myself, who expected a rougher fiscal and administrative transition. The civil servants who were transferred to the authority of the regions must also be congratulated for their resilience — at times some continued working even though they were not exactly sure who would pay them and when. 2. The Continuing Legal Uncertainties Unfortunately, however, not everything went well and there are quite a few other problems that have arisen in the implementation of the law. First and foremost, the legal uncertainties have led to many difficulties and have had a negative impact on trade and commerce as well as on investments. The nature of the legal uncertainties in the law and regulations has been described above. Now let us see what these uncertainties led to in the implementation stage. Adding to the Confusion: New Regulations that might be Ultra Vires and therefore Invalid The Ministry of Home Affairs and Regional Autonomy must be commended for drafting and adopting many regulations, decrees, and instructions (or having them adopted by the government). As mentioned above, there is a great need for clarification of the laws and regulations on regional autonomy

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and the fact that the ministry is trying to clarify the laws is appreciated. A lot of work has been put into this.14 There are, however, a few difficulties with the means chosen to clarify the law. At the risk of being too legally technical, it needs to be pointed out that many of the regulations that attempt to bring clarity are themselves based on doubtful legal grounds. Under the principle of the hierarchy of sources of laws, a law or regulation of a lower level that contradicts a higher law or regulation is invalid. For example a statute that contradicts the Constitution is unconstitutional and therefore, in principle, invalid. The same principle applies to a law and regulation (a regulation that contradict a law is invalid). The recently adopted decree of the People’s Consultative Assembly (MPR) on sources of law15 gives a hierarchical order to most sources of law. Interestingly however, it does not list ministerial decrees as a source of law and therefore it is unclear how the many decrees of the Minister for Home Affairs and Regional Autonomy can prevail over regional regulations — the latter are listed as sources of law in the MPR decree but ministerial decrees are not. Therefore, one could think that ministerial decrees could not prevail over regional regulations. The very basis of both article 18 of the Constitution and article 11 of the Regional Autonomy Law is that regional governments (the kabupaten and kota says the law) have all powers except those granted to the central government by a statute (undang-undang). The grant of powers to the central government cannot be done by regulation, and even less by a presidential or ministerial decree. At least one presidential decree protecting some central powers seems to go directly against the Regional Autonomy Law16 thus again bringing legal uncertainty. In particular it is unclear why the regions should first have to seek the authorization of the Minister for Home Affairs and Regional Autonomy before exercising the powers clearly conferred onto them by the law. Of course for greater certainty, a system which records at the ministry the powers the regions decide to exercise seems like a good idea. However as it stands now the system seems to allow the Minister not to recognize or acknowledge the powers granted to a region by the Regional Autonomy Law. It is difficult to see how this can be done under the authority of a government regulation or presidential decree. This kind of supervision by the Minister was first authorized by a simple presidential decree17 and then a ministerial decree.18 It is, therefore, based on doubtful authority since the Constitution and the law state that regions can only be denied their powers by a statute. After the Minister for Home Affairs and Regional Autonomy acknowledges regional powers, the supervision of the regions continues to be exercised through another government regulation19 which grants the Minister, and in some instances the governors, the power to effectively cancel regional regulations that contradict “the public interest, a higher law or/and other law”. The regulation states that regions which do not accept this

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cancellation can appeal to the government through the Ministry of Home Affairs (article 10). There is a ministerial decree to the same effect.20 This regulation and this decree directly contradict article 114 of the Regional Autonomy Law which states that the government, not the Minister, can cancel a regulation and that the appeal is to the Supreme Court, not to the government. Again, a regulation or decree that contradicts a law should be invalid. The Riau province has threatened to take the central government to the Supreme Court after it revoked one of its regulations.21 This would be the first time the Supreme Court (Mahkamah Agung) would have to apply the Regional Autonomy Law. The above discussion may seem rather technical to non-jurists but it points to the fact that the regulations adopted since the coming into force of the regional autonomy law have often added to the legal uncertainty rather than resolved it. It is important to have efficient supervision of the regions to make sure that they do not in any way exceed their jurisdiction or usurp powers that rightly belong to the central government. This, we will see, is essential for increasing foreign and domestic investments in the regions, for insuring that all citizens are treated equally and that Indonesia remains a common market for all Indonesian workers and businesspersons. Such efficient and strong supervision would have been better based on clear authority in a statute, rather than on a regulation or decree that seems to contradict a statute. Regional Taxation and other Doubtful Exercises of Powers There are many examples of regional regulations that are clearly ultra vires and that should be challenged by the central government. Many regions have purported to exercise powers that they clearly do not have. For example, some regions have purported to enforce religious dress in schools22 or regulate some other religious matters.23 This is clearly beyond their powers (ultra vires) as religion is one of the matters reserved exclusively to the central government. It does not seem however that the Ministry of Home Affairs has been particularly quick to cancel these regulations. The main area in which the regions have exceeded their powers seems to be the imposition of taxes and levies. Many regions have raised many kinds of taxes and levies that exceeded the taxation powers they were granted and the ministry did intervene to cancel some of these regulations.24 These illegal taxes and levies affect not only investments, but also internal trade. Taxes on the value of goods passing through a region hinder trade within Indonesia and threaten the concept of a common market within Indonesia. Continuing Need for a Review of Legislation to Curb Contradictions and Uncertainties Much of the political debate has been about whether there should be a revision of the Regional Autonomy Law but what is not debated much but nonetheless

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important is the need for a systematic revision of other national laws to take into account the devolution of powers to the regions. Unfortunately not much progress has been made in this respect and it is hoped that the numerous national laws in need of a revision will be looked at in a systematic fashion. For example, the country needs a new Investment Law that would clearly state which level of government is responsible for the approval of investments in different sectors. A bill is only now being prepared.25 3. The Regionalization of Corruption and the Emergence of Local Democracy All too often in Indonesia, with power comes corruption. The decentralization of powers has led to a decentralization of corruption. There is ample evidence of such corruption and evidence also of money politics in securing elections and political appointments in the regions. Is the situation worse than under Soeharto and is that why foreign investors are no longer investing? It is hard to compare levels of corruption between the New Order and the present situation. While the long-term goal to fight corruption should of course remain, it must be recognized that corruption does not necessarily hinder investments as long as the corruption is reliable and predictable — after all there was a high level of foreign investments during the Soeharto regime. Unfortunately the decentralization of powers has made corruption unpredictable and unreliable. It has become unpredictable because now you never know how many regional governments will want a take your profits either through official (though perhaps illegal) licence fees or taxes, or through unofficial bribes. The new powers have emboldened local authorities, and the amounts they want are unpredictable as they vary from region to region and from time to time. The corruption has also become unreliable: because of the legal uncertainties in the delegation of powers, even if you pay a certain regional government, you can never be sure that it can deliver since another level of government might claim to have the power to grant you what you want. Fortunately however, there is a counterpart to the decentralization of corruption: local democracy. There seems to be in many regions an increased popular awareness of the newly devolved powers and a desire to make local politicians accountable.26 One way to encourage this emerging local democracy would be to amend the Regional Autonomy Law to provide for the direct election of Governors and Regents as opposed to the present indirect mode of election that encourages money politics and other forms of corruption. This has been promised recently by the Minister for Home Affairs and Regional Autonomy.27 4. The Effect on Foreign Investment and the Economy The effects of legal uncertainties regarding regional autonomy and in particular the cost and uncertainties created by illegal taxes, levies, and regional bribes have hurt foreign and domestic investment. Direct foreign investment approvals

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have diminished by 42 per cent in the first semester of 2002.28 It is of course impossible to isolate regional autonomy from other factors discouraging investments such as the increasing labour costs and labour unrest, security concerns, more general legal and political risks as well as better conditions in competing countries like China and Vietnam. However, the uncertainties relating to regional autonomy are definitely an important factor in discouraging investments. Even investments by the mining industry which is used to roughing it out in tough and unpredictable regions have been affected by the difficulties relating to the new regional autonomy laws.29 Many existing investors are moving their investments to competing countries. 5. The Lack of Protection for Minorities under the Regional Autonomy Law Even before the implementation of regional autonomy laws, fishermen from some regions were preventing fishermen from other regions from fishing in “their” waters. Unfortunately there have been an increasing number of instances of discrimination against Indonesian citizens who do not belong to the main ethnic group of the region where they reside. This is now referred to as the Putra Daerah issue (son of the region issue). As I have pointed out elsewhere,30 regional regulations that discriminate between citizens based on ethnicity, religion, or origin are unconstitutional and therefore invalid. Luckily some regional authorities have recently taken a stand against discrimination based on ethnicity and origins in regional administration,31 but much more should be done. D. Can the Regional Autonomy Law be Amended? Will the Regional Autonomy Law be amended in the near future, perhaps before the elections in 2004? This is hard to tell but the issue is certainly hotly debated. As mentioned above, the law was adopted under President Habibie and offered very broad regional autonomy. Already under President Wahid, the regulations adopted to implement the regional autonomy laws clearly signalled that the central government wanted to keep responsibilities that many thought would go to the regions judging from the broad wording of the laws and the repeated statements of President Habibie. In a way, though not in an obvious or very public one, President Wahid did slow down the move to devolve almost every power to the regions. The fear of many in the regencies and cities is that President Megawati is not fully committed to regional autonomy and wants to recentralize powers either to Jakarta or to the provinces. Given the President’s nationalistic and pan-Indonesian political views, this fear might be in part justified. By now, however, the Regional Autonomy Law has become something of a sacred cow and anyone suggesting amendments to it is accused of wanting to recentralize everything. President Megawati often feels the need to deny that she wants to recentralize, which shows that she realizes that there might be a political price

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to pay if she is perceived as opposing regional autonomy. This political reality makes it difficult for the government to make the necessary amendments to the laws. When government officials want to mention the possibility of amending the law, they do so by talking of improvements (penyempurnaan) rather than revisions (revisi). Even the MPR decree that suggested evaluating and considering amending the Regional Autonomy Law carefully talks of “improvements”.32 After the 2004 elections it might become even more difficult to amend the law. The third amendment to the Constitution introduces a new assembly for the representation of the regions, the House of Representatives of the Regions (Dewan Perwakilan Daerah, or DPD). Each province is equally represented at the DPD. It seems that the agreement of the DPD will be required for matters that relate to regional autonomy (“it shall participate in the discussion” [ikut membahas] of these matters says the Constitution).33 Given the nature of this assembly, it is unlikely that the DPD will agree to any perceived recentralization of powers. It therefore seems that it will be politically much more difficult to amend the law to clarify the division of powers after the elections in 2004. There is however very little time, and very little political enthusiasm, to amend the law before 2004.

III. SPECIAL AUTONOMY LAWS In addition to the Regional Autonomy Law applicable to most provinces, regencies, and cities, some special statutes apply to some regions. These special statutes are very different from the Regional Autonomy Law and from one another. The comments here are limited to introducing briefly each of them. The province of the special region of the national capital Jakarta is constituted by a separate statute and most of the powers normally granted to regencies are granted to the province itself. The heads of the main subdivisions (regents and walikotamadya) play an administrative role and are not elected but appointed by the Governor.34 Given this undemocratic structure and the indirect election of the governor himself, it is not surprising that the recent re-election of a former general as Governor of Jakarta has been marred by accusations of a complete disregard for democratic principles, of corruption and of money politics. Governor Sutiyoso was originally put in place by Soeharto in 1997 for a five-year term and is the very general who, in 1996, had a role in commanding the troops that crushed peaceful demonstrators of Megawati’s own party and killed some of them. Hardly a man with democratic credentials, yet he was re-elected with Megawati’s personal support amid accusations of corruption and money politics. Jakarta might now have the unenviable record of being perceived as one of the least democratic regions in all of Indonesia.35

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A special law was also adopted for Aceh.36 It was not however negotiated with the Free Aceh Movement (GAM) and thus far has not been accepted by them as the basis for peace in that conflict-torn region. The most noted feature of this new law is the fact that the province of Aceh is given the power to implement sharia law although it remains unclear what exactly that means given that it must do so within the secular unitary state of Indonesia. The Province of Papua, formerly known as Irian Jaya, also now has its own statute constituting it as a special region.37 The statute seems to clearly endorse affirmative action in favour of the Papuans (or, as some would say, it institutes discriminations against non-Papuans). The governor must be an ethnic Papuan (orang asli Papua, article 12) and priority in employment and opportunity must be given to ethnic Papuans (article 62). In addition to the Regional Legislative Assembly, Papua has a special “Papua People’s Assembly” (Majelis Rakyat Papua) made up of native Papuans. The consent of this ethnic-based assembly is required for the passing of certain types of regulations and for choosing the Governor. Unlike the general Regional Autonomy Law, all three special laws concentrate most powers at the provincial level rather than at the level of regencies and cities. Finally it should be mentioned that the special region of Yogyakarta feels a bit less special these days since it does not have its own statute. A draft special statute for the region, that would secure a special position for the sultan, is under study in the province.38

IV. CONCLUSION Regional autonomy is very much a work in progress in Indonesia. It is however remarkable that such a radical decentralization done over such a short period of time has not led to more disastrous results, and in fact has led to some positive outcomes (more democracy and empowerment in the regions). The good work of all involved in the process and the significant efforts of the Ministry of Home Affairs must be commended. There are however many shortcomings, as one would expect given the unrealistic time frame in which the transition took place. These shortcomings are unfortunately affecting the Indonesian economy by bringing more legal uncertainty and increasing the local political risks for businesses. These problems should be addressed urgently. It seems to me that the way to go is to “improve” (i.e., amend) the laws so as to make clearer the division of powers between the different levels of government and to put in place efficient and quick ways to curb any excessive power of local governments.

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NOTES 1. MPR Decree number XV/MPR/1998(ii). 2. See Gary F. Bell, “The New Indonesian Laws Relating to Regional Autonomy: Good Intentions, Confusing Laws”, Asian Pacific Law and Policy Journal 2 (2001): 1–44. Available at . 3. See Gary F. Bell, “Minority Rights and Regionalism in Indonesia: Will Constitutional Recognition Lead to Disintegration and Discrimination?”, Singapore Journal of International and Comparative Law 5 (2001): 784–806. 4. See, for example, Undang-undang No. 5, Th. 1974 Tentang Pokok-pokok Pemerintahan di Daerah [Law Number 5 of 1974 on the Fundamentals of Governance in the Regions] and Undang-undang No. 5, Th. 1979 Tentang Pemerintahan Desa [Law Number 5 of 1979 on the Governance of Villages]. 5. Undang-Undang No. 22, Th. 1999 Tentang Pemerintahan Daerah [Law Number 22, Year 1999 on Regional Governance] (7 May 1999) [hereinafter referred to as Regional Autonomy Law]. 6. Undang-Undang No. 25, Th. 1999 tentang Perimbangan Keuangan Antara Pemerintah Pusat dan Daerah [Law Number 25, Year 1999 on Fiscal Balance between the Central Government and the Regions] (19 May 1999) [hereinafter referred to as Fiscal Balance Law]. 7. Article 1, paragraph 1 of the 1945 Indonesian Constitution states: “The state of Indonesia is a unitary state in the form of a Republic.” (“Negara Indonesia ialah negara kesatuan yang berbentuk Republik”). Undang-Undang Dasar Negara Republik Indonesia Tahun 1945. 8. “The unitary State of Indonesia is divided into provinces and these provinces into regencies and cities and each and every of these provinces, regencies and cities form a regional government in accordance with the law.” “Negara Kesatuan Republik Indonesia dibagi atas daerah-daerah provinsi dan daerah provinsi itu dibagi atas kabupaten dan kota, yang tiap-tiap provinsi, kabupaten dan kota itu mempunyai pemerintahan daerah, yang diatur dengan undang-undang.” 9. “Pemerintahan daerah menjalankan otonomi seluas-luasnya, kecuali urusan pemerintahan yang oleh undang-undang ditentukan sebagai urusan Pemerintah Pusat.” Perubahan Kedua Undang-Undang Dasar Negara Republik Indonesia Tahun 1945 [Second Amendment to the Basic Law of Republic of the State of Indonesia 1945] article 18(5), in Putusan Majelis Permusyawaratan Rakyat Republik Indonesia, Sidang Tahunan [Decisions of the People’s Representative Assembly of the Republik of Indonesia, Annual Session], 17–18 August 2000 [hereinafter Second Amendment to the Basic Law]. 10. “Kewenangan Daerah Kabupaten dan Daerah Kota mencakup semua kewenangan pemerintahan selain kewenangan yang dikecualikan dalam Pasal 7 dan yang diatur dalam Pasal 9.” The text in square brackets in the English version is added by the author. 11. The number of provinces and regencies is increasing. These numbers are our best estimate at the time of going to press. 12. See Peraturan Pemerintah R.I. No. 25, Th. 2000 Tentang Kewenangan Pemerintah dan Kewenangan Propinsi Sebagai Daerah Otonom [Regulation of the Government of the Republic of Indonesia, Number 25, Year 2000 on the Responsibilities of the (Central) Government and the Responsibilities of the Provinces as Autonomous Regions]. 13. Bert Hofman and Kai Kaiser (of the World Bank), “The Making of the Big Bang and its Aftermath — A Political Economy Perspective”, available at . 14. To see the large number of regulations, decrees, and instructions that has been prepared and the amount of work that went into this, see the excellent website maintained by the German Technical Assistance Project for Policy Support for Decentralisation (Gtz Poyek P4D) at .

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15. Ketetapan Majelis Permusyawaratan Rakyat Nomor III/MPR/2000 Tentang Sumber Hukum Dan Tata Urutan Peraturan Perundang-Undangan [Decision of the MPR Number III/MPR/2000 on Sources of Law and the Hierarchical Order of Legislative Rules], 18 August 2000. 16. See Presidential Decree (Keppres) no. 62/2001 which purports to allow the National Land Bureau (Badan Pertanahan Nasional) to remain part of the central government for two years when the law clearly states at article 11(2) that land is a matter that the regency or city must regulate. 17. Presidential Decree (Keppres) no. 5/2001. 18. Ministerial Decree 130–67/2002. 19. Peraturan Pemerintah Nomor 20 Tahun 2001 Tentang Pembinaan dan Pengawasan atas Penyelenggaraan Pemerintahan Daerah [Government Regulation Number 20 of 2001 on Fostering and Supervision of Local Governance]. 20. Keputusan Menteri Dalam Negeri Nomor 41 Tahun 2001 Tentang Pengawasan Represif Kebijakan Daerah [Decision of the Ministry of Home Affairs no. 41/2001 on the repressive supervision of regional policies]. The decision conveniently adds the decisions of the Minister as a source of law higher than regional regulations, something the MPR decree on sources of laws had failed to do. 21. See Decentralisation News No. 31, 19 July 2002 available at . 22. See for example “Governor to quiz mayor on Muslim attire directive”, Jakarta Post, 5 June 2002. 23. “Besides in Aceh, sharia also has been introduced in Pamekasan regency in East Java; Maros, Sinjai and Gowa regencies in South Sulawesi; and the regencies of Cianjur, Indramayu and Garut in West Java. In Indramayu, sharia has been implemented in the form of requiring civil servants to wear Muslim clothes on Fridays, to recite from the Koran for 30 minutes before beginning work and to fast every Monday and Thursday. In Gowa regency, South Sulawesi, it has been ruled that thieves will have their hands amputated, as required by sharia. However, no one in the regency has yet been punished in this manner.” As reported in “Sharia has ‘little chance in the country’”, Jakarta Post, 13 December 2002. I should point out that only Aceh is authorized to implement Islamic law. 24. Decentralization News No. 27, 3 May 2002, available at reports, for example, that the Ministry of Finance has identified 123 regional regulations that contradict the law on regional taxations, thus proving that the ministry of finance is monitoring the situation. See also, for example, “Government revokes, reviews regional rulings”, Jakarta Post, 19 February 2002. 25. “House urges govt to complete crucial investment bill”, Jakarta Post, 6 September 2002. 26. “Decentralization Encourages Democracy, Researchers Say”, Jakarta Post, 1 March 2002. 27. See Decentralization News, no. 37, 29 November 2002, available at . 28. “FDI approvals fall 42% in first semester — BKPM”, Jakarta Post, 24 July 2002. 29. “According to the Indonesian Mining Association (IMA) there had been relatively few new investments in the mining sector since 1998, partly due to the legal uncertainties created by poor implementation of the regional autonomy policy”. “Govt revokes 68 bylaws in energy and mineral sector”, Jakarta Post, 3 October 2002. 30. See note 3 above. 31. “Everyone should enjoy equal opportunities — Jambi governor”, Jakarta Post, 10 September 2002, p. 5.

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32. See point 1(f) of the annex of the Ketetapan VI/MPR/2002 Tentang Rekomendasi atas Laporan Pelaksanaan Putusan Majelis Permusyawaratan Rakyat Republik Indonesia Oleh Presiden, DPA, DPR, BPK, MA Pada Sidang Tahunan Majelis Permusyawaratan Rakyat Republik Indonesia Tahun 2002. [Decision VI/MPR/ 2002 on the recommendations on the report on the implementation of decision of the MPR of the Republic of Indonesia by the president the DPA, DPR, BPK, Supreme Court at the annual session of the MPR of the Republic of Indonesia in year 2002.] 33. See articles 22C and 22D of the Constitution introduced by the Third Amendment to the Constitution. 34. See articles 9 and 20 of the Undang-Undang 34/1999 Tentang Pemerintahan Propinsi Daerah Khusus Ibukota Negara Republik Indonesia Jakarta (Law 34/ 1999 on the Governance if the Province of the Special Region of the National Capital Jakarta). 35. “Sutiyoso reelected Jakarta governor despite suspect status”, Jakarta Post, 26 December 2002. 36. Undang-Undang 18/2001 Tentang Otonomi Khusus Bagi Provinsi Daerah Istimewa Aceh Sebagai Provinsi Nanggroe Aceh Darussalam [Law 18/2001 on the Special Autonomy for the Special Provincial Region of Aceh as the Province of “Nanggroe Aceh Darussalam”] [in the Acehnese language]. 37. Undang-Undang 21/2001 Tentang Otonomi Khusus Bagi Provinsi Papua [Law 21/2001 on Special Autonomy for The Papua Province]. 38. “Public, elite divided over Yogyakarta’s special status”, Jakarta Post, 5 September 2002.

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LAOS

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LAOS Mired in Economic Stagnation?

Bertil Lintner

Introduction By most accounts, 2002 was a politically quiet year for Laos. Unlike previous years, there were no student protests or bomb explosions in the capital, Vientiane, and no reported rebel raids against army and police outposts. President Khamtay Siphandone’s government grip on power appeared absolute with no open dissent in the ranks. Elections to the National Assembly were held on 24 February, and the government claimed, “all 2.5 million eligible voters nationwide used their right to vote.”1 There were few surprises when a total of 166 candidates competed for 109 seats in the Assembly, which in effect is little more than a rubber-stamp body controlled by the ruling Lao People’s Revolutionary Party (LPRP). Khamtay is also the president of the Central Committee of the party, which controls all aspects of life and society in the country. The lack of political debate and initiative was seen by most foreign observers as the main reason why Laos’ troubled economy showed few signs of real improvement during the year. A Western embassy in Laos stated in an internal memo dated 10 October that: “the trend is disturbing.” The currency, the kip, continued to slide, inflation rose, foreign investment declined, not enough revenue was being collected, and the government did not even have enough money to pay state employees, such as teachers. In the foreign-policy field, there were problems in the relationship with Thailand over border demarcation. Laos also continued to demand the extradition from Thailand of seventeen Lao rebels who had been involved in an attack on a border post in 2000, and then taken refuge across the frontier. Despite promises from Thailand, the issue remain unresolved as 2002 drew to a close. On the other hand, Laos moved closer to its old allies, Vietnam and Cambodia. In January, the prime ministers of Laos, Vietnam, and Cambodia met in Ho Chi Minh City to discuss the creation of a “triangle development”2 spanning the three countries. In July, a delegation from the Politburo of the

BERTIL LINTNER is a Senior Writer (based in Thailand) for the Far Eastern Economic Review. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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Communist Party of Vietnam met their Lao counterparts in Vientiane, and speakers from both parties paid homage to the “great President Ho Chi Minh” (Vietnam’s late president) and the “respected President Kaysone Phomvihane” (the founder of communist rule in Laos).3 The following month, an agreement was signed between Vietnam and Laos to facilitate the exchange of goods between the two countries in order to increase the volume of the border trade. The Lao Prime Minister, Bounnhang Vorachit, paid an official visit to China and pledged to implement the joint statement signed by the two countries in 2000, which also involved increased border trade. However, with no structural changes in motion, free enterprise remains elusive in Laos. In short, Laos’ attempts to open up its economy, and to tie it to the more prosperous economies of ASEAN, of which it became a member in 1997, have failed. As one economist put it, the country remains ruled by diktat and its economy has not become determined by market forces. Bilateral as well as multilateral donors have urged the Lao Government to liberalize its rigid political and economic system and criticized the lack of transparency, saying “that there is need to move out of the niceties and to get some clear answers from the government”. “Donor fatigue” has also been mentioned and Laos has been described as a “very difficult working environment. No one takes initiative”.4 Domestic and Social Issues The February National Assembly elections may have been the main political event of the year, but the outcome was known as early as in January, when it was announced that all but one of the 166 candidates who had been approved to stand for the elections were members of the LPRP. According to an article published by the Canberra-based ASEAN Focus Group, two candidates were members of the LPRP’s eleven-member Politburo, and a further thirty-three belonged to the forty-two-member Central Committee. In the 1998 elections, four independent candidates were allowed to stand for the elections, and one of them was actually elected. On the other hand, this does not amount to much as all candidates must first be approved by the Lao Front for National Construction, which is one of the LPRP’s mass organizations. The President of the Front, Sisavath Keobounphanh, is an army general and a member of the Politburo of the LPRP. Allowing more independent candidates to take part could be a way to enhance the legitimacy of the elections and to fend off criticism and pressure from abroad. On 7 February, just before this year’s elections, a number of U.S. legislators introduced a resolution calling on the Lao Government to ensure that “all adult citizens … are able to vote and run for public office regardless of their gender, race, ethnicity, religion, economic standing, or political affiliation.”5 This is not likely to happen in the foreseeable future, and despite rumblings from groups of Lao exiles, primarily in the United States, there is no organized

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opposition inside the country. Dissidents tend to leave for abroad rather than oppose the government at home. Some degree of armed resistance may exist among the Hmong in the highlands, but they hardly pose any threat to the government. Social problems were seen as more important challenges to political and economic stability than pockets of unrest in certain hill-tribe areas. Rapid economic growth, then a sharp downturn, coupled with severe income disparities between the urban and rural areas, have resulted in a number of new problems, such as juvenile delinquency, drug abuse, prostitution, and the spread of AIDS among young people, and graft and corruption within officialdom. To combat these ills, whose existence has been acknowledged by the authorities, a number of campaigns were organized throughout the year. In March, singers from neighbouring countries were invited to perform at an International Friendship Concert Against Drugs, and, in June, local pop stars rocked against drugs and teenage boys were ordained as Buddhist monks “to promote good tradition and customs”.6 Harsher measures were also employed. On 19 June, a Vientiane municipality court handed down the first three death penalties to convicted drug traffickers. In March, a man and two women had been caught with 2.7 kg of opium and 16,000 methamphetamine tablets. According to the amended criminal law, people who are found guilty of the trafficking and possession of more than 500 grammes of drugs will receive the death penalty. Having been a scourge in neighbouring Thailand for years, methamphetamine abuse has also become a severe problem in Laos. The pills are manufactured in laboratories in the Myanmar sector of the Golden Triangle, and then smuggled into the country either directly across the Mekong river, which forms the border between the two countries, or through round-about routes via Thailand. Traditionally, opium abuse has been the main form of drug addiction in Laos. The country is actually the third biggest producer of illicit opium after Myanmar and Afghanistan. However, with the assistance of the United Nations and the United States, production has been reduced in some areas. In 2000, 125–160 metric tons of opium were produced from the 26,800 hectares under cultivation in Laos. In fiscal year 2000–2001, the area under cultivation had decreased to 17,251 hectares, and in 2001–2002 to 14,052 hectares.7 About 80 per cent of the opium produced in Laos comes from eight provinces in the north, where most of the country’s estimated 63,000 addicts live. As much as 70 tons are consumed domestically, and thus Laos is not a major exporter of the drug. The authorities have pledged to make the country completely drugfree by 2008, but that may be overly optimistic. Many hill-tribe farmers depend on opium as cash crop which they sell to buy rice from the lowlands, and given Laos’ poor infrastructure and lack of development in the rural areas, opium will remain a major problem for many years to come.

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The first case of HIV was discovered in Laos in 1990 and the first person to contract full-blown AIDS was identified in 1992. According to the health authorities, HIV is not a major problem, and official figures indicate that less than 1 per cent of “high-risk groups” — that is, drug addicts and prostitutes — are infected. Altogether 1,500 people, or only 0.05 per cent of the total population, are infected with the HIV virus, but the question is for how much longer the country can maintain — or claim to have — such low infection rates. Laos is sandwiched between Thailand, Vietnam, and China, three countries which have been hit hard by the AIDS epidemic. In Laos’ other two neighbours, Myanmar and Cambodia, AIDS is out of control. It is only Laos’ relative isolation that has so far saved it from facing the same fate, but in the past decade, Vientiane has undergone a radical transformation. Bars and nightclubs have sprung up along the banks of the Mekong, and because of the current economic crisis, many Lao men and women have been forced to look for jobs in Thailand. Communications with the neighbouring countries have also improved and truck drivers are arriving in large numbers from China and Vietnam. In those two countries, HIV has spread along trucking routes and truck stops, which often have become centres for prostitution. Successful HIV awareness campaigns have been launched and the Lao authorities, supported by international agencies, have used imaginative means to get their message to even the remotest villages, from mobile puppet shows to elephants draped with advertisements for condoms.8 However, Lao officials know that they are facing an AIDS time-bomb, which they are financially and clinically unequipped to handle. These and other social problems come at a time when communism has all but faded in the country. Marxism-Leninism can no longer serve as a moral rallying point, which explains why young people are being encouraged to become Buddhist monks. In the official rhetoric, the LPRP remains firmly committed to “Marxism-Leninism”, but in reality the ideological underpinning today is authoritarianism based on Lao nationalism, of which the Buddhist religion plays an important role. This trend was underlined when on 16 December the still ostensibly communist government announced that it would celebrate a national holiday on 5 January 2003 to mark the birthday of King Fa Ngum who in the fourteenth century established a kingdom which preceded the nation of Laos. A statue of the founder of the ancient kingdom of Lan Xang (“a Million Elephants”) is also to be erected in Vientiane. The announcement was the first public acknowledgement by the present Lao Government of the country’s royal past. The last king of Laos, Sisavang Vatthana, was forced to abdicate when the communists took over in December 1975. He was sent to a prison camp in a remote corner of the northeast of the country, where he died, or was killed, in 1977 or 1978. According to Lao scholar Grant Evans, “What is happening…is an intensification of

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re-traditionalization of the regime to garner legitimacy now that communism has been forsaken”.9 It could also be a way to highlight Laos’ own kings in a situation where many Lao people have adopted the King of Thailand as a substitute for their missing monarchy. Pictures of the Thai king and his immensely popular daughter Princess Sirindhorn can be seen in many Lao homes. The government evidently wants to emphasize the fact that Laos may be a poor cousin of Thailand, but it is still an independent nation. In order to solve all the country’s social and economic ills and to uplift public morale, the authorities have also made a commitment to treble per capita income by 2020 “through a focus on modernizaton and industrialization”.10 Presently, the per capita gross national income is a mere US$290, or a tenth of that of Thailand. If the national income were to treble, Laos would reach the level of China’s per capita income in the late 1990s, and that seems highly unlikely. Laos will most probably remain an agricultural country, heavily dependent on foreign aid and remittances from abroad. The outside infusion of money will also serve as a social safety valve preventing social and political unrest among the population at large. The Economy Laos was actually one of the first communist countries to decentralize control and encourage free enterprise. The first free-market reforms were implemented in 1986 under a bold scheme launched by Kaysone and called jintanna kan mai (new way of thinking). As part of this policy, a “new economic mechanism” was put into action to revitalize the country’s then moribund economy. A decade of austere socialism had failed to improve the living standards of the people, which Kaysone acknowledged in his report to the 1986 LPRP congress. The country’s disastrous agricultural collectives were abolished and private enterprise allowed for the first time since the communist takeover in December 1975. In August 1991, a new constitution was adopted which formalized the introduction of a market-oriented economy, guaranteed the right of every Lao citizen to own property, and provided protection for foreign and domestic investment. Initial results were striking. Laos — one of the world’s poorest countries, where subsistence agriculture accounts for half of gross domestic product (GDP) and provides a livelihood for 80 per cent of the population — may have started from an extremely low base, but even so, annual growth averaged 7 per cent in 1988–97. There was substantial foreign investment in mining, food processing, and the textile industry. A major problem was the country’s heavy dependence on Thailand. Thai goods accounted for an estimated 45 per cent of total imports, 37 per cent of total exports and 42 per cent of the US$5.7 billion in total committed investment in 1988–97. Thai businessmen, who were hard hit by the 1997 crisis, have since pulled out most of their investments, while Thailand remains a major trade partner.

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This has led to a heavy dependence on foreign aid and loans. Total external public debt accounted for 69 per cent of the US$1.6 billion GDP in 2001 and, domestically, the International Monetary Fund (IMF) pointed out in a report from 29 July 2002, that credit by state-owned banks increased sharply in that year despite credit controls, “possibly due to irregular lending”.11 This carefully worded statement points the finger at Laos’ main problem: despite liberalization in some areas, no structural changes have taken place. The government is still dictating economic policy and subsidizing state commercial enterprises, which are losing money. Some government efforts to stabilize the economy have also been counterproductive. When in the beginning of 2002 it came under pressure from the IMF and bilateral donors to increase revenue collection, the remedy was to levy more tariffs on goods coming in from Thailand. This stimulated smuggling and stoked inflation as foreign goods became more expensive. In April–May, inflation stood at 7 per cent and in September, it had risen to a two-digit figure of 15–16 per cent, for the first time since the economic crisis in 1997–98. However, revenue increased only marginally, resulting in budget shortages, which, in the case of Laos, meant that teachers and other civil servants had to go without pay. The kip also slipped in 2002, falling to more than 10,000 to the U.S. dollar, while GDP growth recovered somewhat when compared with the late 1990s. This was mainly due to a number of state-sponsored and aid-funded infrastructure projects, not because of increased agricultural or industrial output. Prospects were not good even for Laos’ potentially most lucrative export: hydroelectric power. In October, Laos decided to go ahead with a controversial hydroelectric power project called Nam Theun-II, at a cost of US$1.1 billion and due to be completed by 2008. The problem was that Thailand, the expected customer, had not yet agreed to buy the electricity. Significantly, 73.2 per cent of all investment, foreign and domestic, is in the power sector, the future and profitability of which is highly uncertain. While industrial output is down, the agricultural sector, which accounts for about half of GDP, is hampered by weak infrastructure and outdated production methods. This also makes it extremely vulnerable to adverse weather conditions. In August, Vientiane was swamped by the worst floods in thirty-six years, and in September, floods caused havoc in Bolikhamsay province. Houses were swept away, hundreds made homeless, and road number 8, which links Laos and Vietnam, was cut off. Livestock and paddy fields were washed away. Floods were also reported in other parts of the country. Flood damage in Sangthong district alone was estimated at 1 billion kip (US$100,000, a huge sum in a small rural community), and 1,050 hectares of paddy fields as well as gardens and fish ponds of 1,637 familes in twenty-three villages were destroyed.

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On 30 September, the newly-elected National Assembly met for the first time, and on the top of the agenda was “ways to prop up [the] economy”.12 Prime Minister Bounnhang promised to “promote as much investment as possible” through the establishment of “special economic zones, border trade areas, areas for producing export goods, trade fairs and exhibitions”.13 However, it was not clear from where the expected investment would come. The report presented by Thongloun Sosoulith, President of the Committee for Planning and Co-operation, which among other duties oversees foreign investment, was also gloomy. In the fiscal year 2001–2002 (the fiscal year from October through September), the value of exports was a mere US$319.6 million, a decrease of 2 per cent from the previous year. Imports, on the other hand, increased 1.3 per cent to US$534.6 million. The overall deficit amounted to US$215 million, covering 12 per cent of GDP. In the fiscal year 2000–2001, the deficit was US$203 million, an increase from US$121 million in the previous year. This was paid for by foreign aid, which in fiscal 2001–2002 totalled US$238.27 million from multilateral and bilateral donors, and US$104.04 million in loans. It is debatable how “disturbing” the economic trend is in Laos, but it seems to be the general trend, although not a road to complete disaster. In fact, the IMF even pointed out in its 29 July statement that the country’s “economic performance has improved considerably since 1999”. However, that again was in comparison with the disastrous years immediately after the 1997 Asian crisis, when many economies in East Asia, including Laos’, hit rock bottom. Laos manages to survive mainly because the government continues to rely on foreign aid to finance public investment projects and to cover a chronic current-account deficit. For the population at large, the saving grace is the fact that many of them have relatives abroad. About 10 per cent of the population left the country after 1975, mostly people from the Vientiane valley but also many Hmong and other hilltribesmen, who had fought on the side of the Americans during the Indochina War. As a result, there is a steady stream of remittances primarily from the United States, France, and Australia. A December 1999 report by the State Planning Committee lists remittances from abroad as the single most important source of income in the Vientiane valley, representing 28 per cent of all household earnings, compared with 25 per cent from agriculture, 22 per cent from wages, and 18 per cent from business. More recent figures are not available, but the dependence on remittances has probably increased as the domestic economy is deteriorating. In the northern hills, home of the Hmong and other tribal peoples, dependence on remittances is even higher. Indeed, Laos seems to suffer from a cargo-cult mentality, relying on “gifts from heaven” descending on the government and the people from abroad. This is likely to deepen the economic malaise rather than spark badly needed sustainable development.

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Foreign Policy and the Politics of Foreign Aid Laos’ entry into ASEAN in 1997 was expected to bring the country into a prosperous and harmonious family of nations in the region. However, first came the Asian crisis and the near-collapse of the Lao economy. Then relations with Thailand turned sour as the two countries were unable to resolve the question of demarcating their common land border. The Mekong river makes up most of the border, stretching 1,100 kilometres, but there is also a land boundary that runs along 702 kilometres which is far more difficult to demarcate. It is based on an agreement signed in 1926 between Siam (Thailand) and the old colonial power, France, but different maps exist and many border markers are missing. Border disputes had in the past led to several armed conflicts between Laos and Thailand. The most serious confrontation took place in December 1987–February 1988, in which an estimated 1,000 soldiers on both sides were killed. By late 2002, however, 90 per cent of the land border had been demarcated, and disagreements over the remaining 39 points along the frontier are expected to be settled in 2003. However, that leaves the long river border. Sand dredging in the Mekong has changed the course of the deepest channel which is used as the benchmark to demarcate the boundary. In December, Lao Foreign Minister Somsavat Lengsavad conceded that demarcation of the water boundary was difficult since natural processes had changed parts of the Mekong watershed, and the two sides used different maps. However, he added that: “We do not want a conflict spinning off [again] from differences over the water boundary.”14 Signs that Lao–Thai relations were on the mend could also be detected in September, when Somsavat met his Thai counterpart Surakiart Sathirathai to settle a number of bilateral issues. The two sides agreed to open more border checkpoints to facilitate tourism and border trade, and Thailand demonstrated its goodwill by giving scholarships to students from Laos. However, Thailand’s reluctance to hand over the seventeen rebels — whom the Lao authorities had branded as “bandits” — who had raided a government outpost at Chong Mek near the Thai border in July 2000, and then hoisted the old pre-1975 royal flag over the customs post, continued to cause tension between the two countries. According to a study carried out in 2001 and financed by the Thailand Research Fund, an academic think-tank, many Lao people, especially their leaders and young students, have an ambivalent attitude towards Thailand. Despite close linguistic and ethnic affinities between the two peoples, Lao students in Thailand did not think highly of their host country, and government officials said that they did not trust the Thai media. The year-long research also found deep animosity towards the Thai Government and the bureaucracy, including the soldiers and police. However, the study, titled “Thai–Lao Relations from the Lao perspective”, showed that the Thai king and the academic sector of Thai society were considered Laos’ best friends, according to 85 per cent of the respondents polled.15

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Relations with Vietnam were much more cordial. State and party leaders paid visits to each other’s country. During a visit to Vientiane in July by a delegation led by Phan Dien, a member of the Politburo of the Communist Party of Vietnam, Thongsing Thammavong, an LPRP Politburo member and mayor of Vientiane, had remarked in a statement that could have been viewed as an indirect criticism of Thailand: “[an] accomplishment [in bilateral ties] was the completion of work on Lao–Vietnamese boundary sur vey and demarcation. Laos and Vietnam are linked by over 2,000 km of mountain ranges, forests and rivers. The border demarcation was seen as a model in solving a complicated geographical issue left over by history”.16 Vietnam was praised for its political support for the Lao party and government, and for helping to construct educational facilities and infrastructure, for accepting Lao students in its colleges and universities, and for training Lao policemen and soldiers. The special relationship and close co-operation between Laos and Vietnam, Thongsing emphasized, go back to their common struggles against, first, the French colonial power and then U.S.-supported regimes during the Indochina war in the 1960s and 1970s. That, for the Lao authorities, is a much stronger bond than the ethnic closeness to Thailand. In October, a joint venture centre between Vietnam’s Hai Duong province and the Lao province of Vientiane was inaugurated in the Lao capital. The centre was built with contributions from both Vietnam and Laos, and it was announced that this would help to boost “bilateral co-operation and mutual help in the exchange of experiences, personnel training, raising of professional skills, technology transfer in farming, cultural and sports exchanges, and the learning of the Lao and Vietnamese languages”.17 Relations with China were also cordial, and not only Prime Minister Bounnhang paid a visit to Beijing during the year. Perhaps even more significantly, in December Lao Defence Minister Douangchay Pichit was received by President Jiang Zemin, who praised Sino–Lao ties, which had “withstood the test of time”. Without being specific, Douangchay thanked China for its “long-term support and assistance to Laos”.18 That China has become a major player in Laos became evident during the height of the country’s currency crisis in 1999. China provided generous export subsidies and interest-free loans that had helped to stabilize the kip. Moreover, in the celebration of the twenty-fifth anniversary of the communist takeover in Laos, China donated 60 million renminbi (US$7.2 million) to help build a mammoth cultural centre in Vientiane that was opened in February 2000. Since then, border trade with China has increased in importance as Thai goods have become quite expensive. China has also helped Laos to upgrade several roads in the north, and, as a result, many Chinese have settled inside Laos to do business. However, help from China and Vietnam cannot match the massive development aid the country is getting from bilateral donors such as Sweden,

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Australia, and Japan, and grants and loans from the IMF and the World Bank. Increased assistance to Laos has, however, created a situation where the country has become too dependent on foreign aid to develop its own resources. In 1985–86, before free-market reforms were implemented, foreign assistance accounted for 6.25 per cent of Laos’ then meagre GDP. By 1988, it had increased to 10 per cent. Now it is 16 per cent — a level at which self-sufficiency and sustained development will be difficult to achieve. The donors are aware of this, and the fact that Laos has been caught by what is called “the Dutch disease”, or too heavy dependence on foreign aid and a vicious circle of loans and debts. Laos has been encouraged to increase its own revenue collection, but, as we have seen, this has only led to smuggling and inflation. In April 2001, the IMF approved in principle a three-year arrangement for 31.7 million Special Drawing Rights (US$40.7 million) to lift Laos out of poverty. Part of the plan is to restructure Laos’s deeply insolvent banks and to promote the private sector in order to revitalize the sluggish economy. Conclusion Laos’ main problems remain the same as in previous years: too much dependence on foreign aid, lack of openness and transparency, no political debate on how to solve the country’s problems, and little or no investment outside the power sector, the future of which is uncertain. So far, donor pressure to liberalize the economy has been met with reluctance, and suggestions that the political system should become more open have been ignored. Thus, it is likely that Laos for the foreseeable future will remain an economic basket-case ruled by an authoritarian regime.

NOTES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Vientiane Times, 26–28 February 2002. Vientiane Times, 25–28 January 2002. Vientiane Times, 19–22 July 2002. “Round Table Meeting VII, Lao PDR: Summary of Donors Perspectives”, UNDP, 2000. ASEAN Focus Group, “To the Polls”, Asian Analysis, March 2002, at . Vientiane Times, 18–20 June 2002. Reuters, 1 October 2002. BBC, “East Asia Today”, 30 October 2002. South China Morning Post, 19 December 2002. Australian Department for Foreign Affairs and Trade, “Laos: Country Brief”, March 2002. The commitment was made at the seventh LPRP congress in March 2001. “IMF Concludes 2002 Article IV Consultation with the Lao People’s Democratic Republic”, 29 July 2002. Vientiane Times, 1–3 October 2002. Ibid. Bangkok Post, 12 December 2002.

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Bangkok Post, 7 July 2001. Vientiane Times, 19–22 July 2002. Khaosan Pathet Lao, 29 October 2002. Xinhua, 17 December 2002.

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Southeast Asian Affairs 2003, pp. 149–67

MALAYSIA IN 2002 Bracing for a Post-Mahathir Future

Maznah Mohamad

Introduction Prime Minister Mahathir Mohamad’s unexpected announcement at the 2002 UMNO General Assembly of his intention to resign on 22 June was one of the most baffling developments for the country. Although his detractors had long clamoured for his stepping down but were almost resigned to tolerating his prolonged tenure, they too were surprised and puzzled by the timing of his resignation. Coincidentally, the second largest Malay party, the Islamic Party of Malaysia (PAS) also lost its leader a day after Mahathir made his own announcement to give up his premiership. Fadzil Noor, president of PAS for the last thirteen years, died on 23 June 2002. With the passing of moderate leader Fadzil Noor, there is speculation that PAS will take on a more hardline Islamic stand under the stewardship of Hadi Awang. The year 2002 was thus the penultimate year of Mahathir rule. On the surface, it passed by quietly for the countr y, although deeper within lies the makings of many future turbulences. Transition or Continuity? Mahathir’s scheduled exit has become a subject of great reflection as to whether Malaysia in 2002 had entered a transition phase that will divide its Mahathir years from a post-Mahathir era. Will there be a continuity that will see the Mahathir legacy seamlessly enmeshed with the policies of his successor or will his departure mark a crucial political watershed? Most opted to see the future of Malaysia in the former, stable sense. Wary of what would await the future, moves were started by some quarters in October 2002 to pedal arguments and a “moral” plea for him to consider staying on, until this possibility was quickly denied by the Prime Minister’s own son.1 Mahathir himself is unlikely to contest in the next election due in 2004.2 Perhaps what was behind this momentum to prolong Mahathir’s leadership was the rise of increasingly fractious national issues and political dilemmas all set to pepper post-Mahathir Malaysia. In addition, seeds of an unstable Southeast

MAZNAH MOHAMAD is an Associate Professor in the School of Social Sciences, Universiti Sains Malaysia. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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Asia had been sown with the rise of political Islam and its violent ramifications, in which Malaysia has been a strong link in the chain of events. In a way, Mahathir’s seemingly sudden intention to resign could be the result of his own calculated belief that things would never be the same again in Malaysia and in the region. The golden years of development, stability, and violence-free multicultural co-existence of its citizens seemed destined not to continue, with or without his intervention. The year 2002 saw Malaysia facing several national and global challenges — how to deal with the demands of a more forceful Islamic electorate, what to make of the “failed” Malay agenda, how to cope with the promises and threats of economic globalization, and how to sustain a regional security regime that will be reassuring to investors. Malaysia will be very different from the past era during which Mahathir was able to successfully play out his ambitions and visions. Structurally, it will be much more difficult for his successor to follow suit. Would he then be leaving a legacy of a Malaysia no longer set on a selfassured path to developed status? Certainly, national and regional events in 2002 have heralded a less economically confident, more politically ambivalent, and a culturally more divided Malaysia. Yet, the doors for political reforms may inadvertently, if not inevitably, be opened. Problems of Successorship One question that preoccupied observers on the question of Mahathir’s resignation was whether this would, in fact, lead to a break-out of serious in-fighting within his party, especially among the contenders vying for his vacated position. It proved otherwise, at least for the most part of 2002. Successive years of factionalism and in-fighting, though successfully if not brutally subdued by Mahathir, had created a condition of fatigue among major players. Although Abdullah Ahmad Badawi, current Deputy Prime Minister and successor to the premiership was not the party’s best choice and was appointed by default because of Anwar Ibrahim’s ouster in 1998, there was no apparent contest against his relatively quick “enthronement” to the premiership. He had been considered a compromise candidate, or even the best among the worst, that the party had. Although there were many contenders to the position, namely, the three vice-presidents in the party, none seemed to have the adequate credentials to impeccably rival Abdullah Badawi’s “clean”, though somewhat lacklustre but nevertheless uncontroversial image. Mahathir even tried to avoid the possibility of a leadership tussle by naming Najib Tun Razak, current Defence Minister as the number two to Abdullah Badawi. Come October 2003, and if Mahathir actually steps down, it is unlikely that the floodgates of intra-party battles will be re-opened. There was only one major issue that occupied the United Malays National Organization (UMNO) in 2002, despite potentially contentious issues involving language and education, and that involved the question of how to mechanically win every by-election

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and eventually the next general election. This meant that UMNO had to continually close ranks in order to keep the electoral machinery running. Despite proclaiming that it had won back the trust of the Malays, there was no stunning evidence to denote a resurgence of Malay support for the party. In fact, its rival, PAS continued to wax confidence in its political agenda. A post-Mahathir Malaysia will see UMNO’s stars dimming slightly as the party will be forced to play out its role more drearily at the electoral front, combating PAS’s ascendance, rather than taking on a more creative role at spearheading national development. The year was one in which every by-election was considered significant enough to function as a barometer of support or rejection of UMNO. For instance, with the passing of Fadzil Noor, a by-election was held in July for both the state and parliamentary constituencies held by him in the state of Kedah. The result of this election was much anticipated as it could be construed as an indicator of Malay majority support for either UMNO or PAS. This was because both constituencies are Malay-majority areas. UMNO won the Pendang parliamentary seat while PAS retained the Anak Bukit state seat, hence confirming the much-touted belief that Malay votes are now split right down the middle between PAS and UMNO. Even Mahathir was forced to acknowledge the fact that both the government and the opposition party must now depend on non-Malay support for their electoral victory.3 UMNO also had to contend with the national mood that had become one of either indifference, remorsefulness, lethargy, or confusion.4 The only thing that the party could count on for shoring up its legitimacy was the fear factor, especially among non-Malays over the Islamization issue. However, it had sent out an ambiguous, if not disingenuous message, when Mahathir proclaimed in 2001 that Malaysia was already an Islamic state. For most quarters, especially the opposition Democratic Action Party (DAP), this came as a shocking announcement akin to driving the thin end of the wedge that would ultimately lead to the realization of a full-fledged non-secular Malaysian nation-state. For Mahathir himself, it was a strategic manouevre, in that UMNO had to play a double-game of appeasing its Malay constituency by insisting that Malaysia was already an Islamic state while reassuring the other communities that it will remain the strongest opponent to PAS’s version of Islamization. A post-Mahathir Malaysia, with Abdullah Badawi at its helm, will either have to clarify this stand or undo its damage. Abdullah Badawi has not developed any attention-grabbing style of leadership. His main asset is in being a non-contentious deputy and trailing the Prime Minister’s course studiously and unwaveringly. Although his personal style may be nondescript, his policies look certain not to detract from his predecessor’s (even from some of the outrageous ones). Perhaps this is because he has seldom exhibited much original imagination in his words and deeds. However, it is not beyond anyone’s expectations for him to spring some surprises

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when he does become Prime Minister, especially given his potential coterie of advisers who would like to reshape the country in their image, and perhaps even sever the Mahathirian umbilical cord from the Malaysian psyche. However, once in power, Abdullah may need to resolve a few thorny issues that would not have been possible with Mahathir at the rein. First, although the Anwar issue may have been shunted into the margins in the light of the events of 11 September and its repercussions, Abdullah’s legitimacy among the Malays will never be sealed unless a resolution or a reconciliation is sought to correct the widely perceived wrongs inflicted upon Anwar. Secondly, he would have to rebuild the image of UMNO, no longer as a champion of Malay privileges, but as a party capable of delivering reforms and good governance to all Malaysians. UMNO, for all intents and purposes, has lost its moral high ground to champion the cause of both Malay dominance and Islam. In fact, in the midst of the anti-terror war, it could not afford to choose the language of Islam over secularism. On the latter, it was a strategically difficult choice as it was ultimately tied to its own survival and identity as a Malay party. Finally, Abdullah would have to clean up the unfinished business within UMNO itself — to realize the party’s own resolve to overcome corruption and mismanagement in the system. All these issues were somewhat side-tracked in 2002, with a large part of the year taken up by the politics of economic survival and national and regional security imperatives after 11 September. Economic Survival and Globalization In leaving the stage, Mahathir is certain to want to leave a legacy that would sustain the economic foundation of the country. The heyday of export-oriented industrialization built upon the backs of low-waged labour will soon come to a close, with competition coming from the likes of economies such as China, Vietnam, and India. Malaysia’s domestic market is also small compared with some of these economies. This is why the issue of Malaysia’s economic sustainability, if not survival, has become the urgent focus of an exiting Mahathir regime. Essentially, this means that it has to seek other strengths to compete on, move up the value chain of production and work on making local companies and entrepreneurs more innovative and resilient. Economically, Malaysia’s recovery from the 1997 crisis seemed positive, with a prediction of a 4–5 per cent gross domestic product (GDP) growth rate for the year 2002. Its third-quarter figures showed GDP growing by 5.6 per cent. The manufacturing sector contributed strongly to this upward trend.5 Nevertheless, in other respects, the recovery is still slow, with the rate of foreign direct investments (FDI) flow from developed economies declining over the years since the 1997 financial crisis.6 A major factor stimulating the economy was public works and domestic consumer spending, with no new sources of economic growth providing a significant boost for expansion. The only feasible base for a new economic upturn is the development of its human

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resource, besides improvements in infrastructural support and corporate governance. As direct investment from developed countries decrease, Malaysia is looking for other sources of investment inflow, particularly from less developed but growing economies. Priding itself as a confluence of many cultures, particularly Chinese, Indian, and Malay, there are moves now to attract Chinese companies to invest locally, to tap into the Middle Eastern markets and to export services such as road and rail construction to the Indian subcontinent.7 Given Malaysia’s imminent disadvantage over other resource-rich and lowercost labour countries in the region, it has to focus on upgrading its human resources in order to remain competitive. Educational reforms would be hardest to achieve in this respect. Switching to an ethos of meritocracy in higher education enrolment and converting the educational system into an Englishmedium one require strong political will, not in verbal pronouncements but in actual implementation. So far, only the rhetoric has been strongly geared in this direction, but the proof of the pudding is still in the eating. It is, of course, too early to measure the effectiveness of this policy, although controversy over the issue did boil over to leave some bitter after-taste in intra-party relations within the ruling Barisan Nasional (BN, or National Front) coalition. English Language Policy The English language policy can perhaps be seen in the context of Malaysia’s economic survival rather than merely as educational reform. The official justification for this policy was that, with globalization, Malaysia’s comparative advantage would be in the knowledge industry, which is predicated upon the mastery of information and communication abilities. The year 2002 saw a determined Mahathir pushing through his policy of re-introducing English back into the system, even though such a move was opposed, ironically not from within UMNO but by the other non-Malay coalition partners, namely, the Chinese-based parties. The policy decreed that from 2003 onwards, the teaching of Mathematics and Science in English will be made compulsory at selected levels in schools. This was nothing short of a radical policy, necessitating the undoing of the national education system, and hence primarily the abandonment of past bases of nationalism. As to be expected, this policy was not well received by various quarters. It had touched the raw nerve of a bitterly fought historical battle between Malay nationalists and Chinese educationists on one side against the defenders of a more colonial-oriented, English school system on the other.8 Malay nationalists felt betrayed by what they saw as a volteface policy that would inevitably compromise the importance of the national language. The Dong Jiao Zhong (Chinese education movement) was the other group which strongly resisted the proposal to substitute the use of Mandarin for teaching Science and Mathematics with English. To them, the historical struggle to retain Chinese schools within the national education system was a

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hard-fought one, which culminated in it being emblazoned through legal guarantees. The Mahathir leadership insisted that it only wanted to link the reembracement of English with the issue of Malaysia’s economic survival, thus explaining why only Science and Mathematics were chosen for the switch.9 To the critics, however, besides compromising on the principle of language nationalism, this will also come with a probable social cost in the widening of class, ethnic, and rural–urban divides. The use of English in schools will exponentially advance the more urbanized and middle-class students over rural and poor children. However, what most people could not comprehend was how proficiency in English could be attained by learning it through technical subjects such as Mathematics and Science. Pessimists anticipate a dire result out of such a peculiar “strategy” — that children would end up being competent in neither English nor Mathematics.10 In October, the Malaysian Chinese Association (MCA), a partner in the ruling coalition, followed the lead of Gerakan, another Chinese-based BN party to oppose the use of English for Science and Mathematics in Chinese primary schools. However, Mahathir eventually forced a consensus for all BN component parties to accept the ruling, with some formula for a compromise. Essentially, this meant having Chinese school-going children receiving instructions for the subjects twice, once in English and then again in Mandarin. The nature of political bargaining over Malaysia’s education system, as the above episode illustrates, has always taken on an ethnic and exclusivist overtone. The result of such accommodative strategies is a national education system that is polarized today as it was during the colonial times. Recently released information reveals that only 2 per cent of Chinese, 4 per cent of Indians, and 2.78 per cent of other non-Malay Malaysian primary school-going children are in national schools.11 In short, national schools have become the predominant enclave of Malays. Yet, more and more Malays are also sending their children to government-subsidized, but privately or community-run Islamic schools (Sekolah Agama Rakyat [SAR]). Just as Mahathir is set to leave his premiership, an immense task awaits his remaining few months in office. He and his successor would have to overturn the education system which has degenerated to become institutions of ethnic exclusiveness. Mahathir is said to want to use the rest of his premiership to correct what he had failed to mitigate within the education system in his twenty-two year-rule.12 He plans to make national schools attractive to all races, through measures such as a government voucher scheme in the form of a monthly allowance for each national school student, by availing the learning of Mandarin, Tamil, and Arabic in national schools and by setting up premier schools to train professionals in élite vocations such as in business and the diplomatic service.13 Mahathir’s Dilemma: Changing the Malays, Again Seen in the above light, Mahathir would also have to come terms with his other preoccupation. The subject most closely identified with his political

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rise and fall is the Malays. His obsession with their political and economic fate was first broached in the late 1960s. The question of the Malay Dilemma, posed in his book of the same title, seems to have resurfaced in 2002. In most likelihood, this must have been spurred by the aftermath of Reformasi brought about by the Anwar crisis in 1998. As had been analysed often, Reformasi brought about an almost unprecedented outburst of Malay discontentment against the Mahathir government, and UMNO specifically. In reacting to this, Mahathir devoted the first few years after Reformasi on salvaging the reputation of UMNO, through a strategy of lambasting the Islamic opposition. Soon after, this position changed to one of denigrating the Malays, as a general community and a racial entity. This position was openly expressed at the 2001 General Assembly, during which Mahathir unabashedly implicated the Malays for being lazy, forgetful, and ungrateful. The subtext was one of disappointment at seeing how the Malays have turned their support away from UMNO and, more precisely, at how much personal hurt he had suffered for being lampooned as the Great Pharaoh (Mahafiraun) by his cyber-detractors.14 Worst of all, despite the party’s role in securing a Malay-dominated state, Malays were inclined towards the opposition party. In 2002, his speech at the party’s annual Assembly continued along the same line, though this time he was prepared to even implicate himself for the failure of what he describes as “… the task of making my race a successful race, a race that is respected, a race that is honourable, a race that is highly regarded.”15 Critics have been quick to point out, however, that it is not the Malays that have failed him but the other way around.16 Mahathir’s ideas, which are essentially a rehash of the “Malay Dilemma” in contemporary context, were later spelled out more systematically in a speech that he gave on 29 July 2002. Lamenting how he had initially thought that the way out of the Malay predicament was to give Malays opportunities in education and business, he had come to the realization that this was not to be. The target of 30 per cent equity ownership has never been met. His own diagnosis of this failure seems to have come full circle — it is the Malay culture that is to be blamed. The Malays, according to Mahathir, “are laid-back and prone to take the easy way out. And the easy way out is to sell off whatever they get and ask for more. This is their culture”.17 Although the diagnosis of the problem may have come full circle, his solution to the problem has been drastically reversed. Instead of prescribing “opportunities”, he now wants Malays to do away with any special privileges. Yet, another root cause of Malay backwardness identified by Mahathir is the emergence of the Islamic party, which he says has deflected the resilience of the Malays to achieve success by distorting the true call of the religion. Though seemingly simplistic, this is the formula through which he himself hopes to overhaul UMNO. It is a two-pronged strategy, which will likely not go down well with large sections of the party. It involves changing the role of the party from being the purveyor of Malay affirmative-action policy to one which dismantles it. It also means

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having to evidence the damaging influence of political Islam (PAS is to be used as a scapegoat) upon Malay progress, in the faint hope that this will win back Malay support for UMNO. In trying to push for this new approach, it is also becoming his own dilemma rather than that of the Malays. For one thing, UMNO’s basis of power all this while had been through the strategy of appeasing certain groups of Malays, through the disbursement of material largesse in exchange for loyalty. Mahathir is now attempting to dismantle bumiputra (indigenous) economic privilege by resorting to a relentless policy of economic liberalization. However, while deregulation may be badly needed to spur economic growth, the erstwhile trend of state regulation or “developmentalism” was also the basis upon which business patronage and cronyism were cultivated to strengthen UMNO’s dominance. If he were to unleash extensive market competition, this will inevitably be at the expense of Malay protectionism. This is happening fast. One important legislation which will take away some of these privileges is the amendment that is being made on laws concerning Malay reserve land. An amendment to be tabled soon will allow for these lands to be leased to nonMalays and companies for sixty years, as a way of encouraging the development of such land.18 In this new scenario, questions will certainly arise as to whether Malay loyalty towards UMNO can be sustained. Secondly, attempts to drive a wedge between PAS’s version of Islam and a so-called more contemporary and amenable Islam (one exclusively propagated by UMNO) will lead to an unresolved sense of confusion among Malays. The groundwork for state Islamization was actually laid down by UMNO itself, even though that may have been spurred by the raising of the Islamic ante by PAS. If Mahathir claims that the political Islam touted by PAS had deflected the energies of the Malays into another-worldly and materially regressive pursuit, it was also UMNO’s own doing that the institutionalization of Islam had become widespread and hegemonic in the everyday lives of the Malays. What Mahathir was hoping for was a rolling-back of Islamization without proclaiming that religion must be loosened from the institutions of governance. His strategies have been both novel and confounding. For instance, by declaring that Malaysia was already an Islamic State, just after 11 September, he was hoping to persuade Malays that there was no need to replace the present system or the status quo with another Islamic alternative, particularly one touted by the Islamic opposition party. One manifestation of this “rolling-back” is the latest government move to withdraw government subsidies for privately-run religious schools or the SAR. The justification used was that these schools were merely churning out anti-government propaganda and were not even geared for training students in proper religious education.19 Post- 11 September sentiment against terrorism has also helped to paint these schools to be the potential breeding grounds of Islamic militants. In fact, these schools were the basis of PAS’s grassroots support movement. The consequence for revoking support towards these schools could work both ways for the government — there will

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either be success in weeding out opposition support or a more widespread Malay backlash against UMNO in what is perceived as its anti-Islam stance.20 Finally, although it is not expressed in any of his speeches, it is clear that Mahathir had not succeeded in grooming anyone within the party to fill in his shoes, particularly in emphatically sharing the same essentialist sentiment about racial progress as he does, while combining this with a developmentalist agenda for all that cuts across ethnic lines. By ousting all the dynamic deputies and contenders for power within UMNO, starting from Musa Hitam, then Tengku Razaleigh Hamzah, and finally Anwar Ibrahim, he only succeeded in cultivating a broad-based assemblage of loyalists not predisposed to thinkingagainst-the-grain. This may be to the detriment of the growth of second echelon independent, innovative, and dynamic thinkers and leaders within UMNO. The vision that Mahathir has had either on nation-building, or on Malay advancement, or on international justice may or may not be carried out by his successors, namely, Abdullah Ahmad Badawi and Najib Tun Abdul Razak who is tipped to be the next deputy premier, if not the likely premier soon. Mahathir’s “iron-grip” twenty-two-year rule may have been necessary for pushing through his plans of establishing a post-modern affluent society, ruthless though his anti-civil liberties perspectives may be. However, he has certainly left an intriguing legacy — a post-modern society that can be described as exemplarily plural but strange — fundamentalist, parochial Islam co-existing with the middle-class ultra-moderns, and a politically-astute Malay leadership arising out of a cultural community still chastised as bereft of entrepreneurial savvy. Intra-Party Conflicts and the Future of Consociational Democracy The strangely plural though successfully-integrated nation that Mahathir has kept watch over is normally attributed to the consociational framework which formed the basis of Malaysian nationhood. Of late, however, there have been developments which may challenge the efficacy of this political model in sustaining Malaysia’s stability. Starting from the 1999 elections, the under-performance of UMNO had caused its stature to be dented within the National Front. The MCA (Malaysian Chinese Association) was able to increase its bargaining power within this changed climate of a beleaguered UMNO in its midst. For example, in May 2001, it was able to buy up stakes in a major publicly-listed Chinese language newspaper after it was given the green light to do so by the Prime Minister. Previously, this would not have been easily tolerated by UMNO as it would have preferred its own monopoly over the media industry. Thus, this was a big success for the MCA as it had managed to break the old “social contract” whereby UMNO was to maintain an upper hand over the more politically-strategic business deals. In addition to this major “coup”, the MCA’s long-standing plan to establish its own private university was also realized after official approval was given for it. Previously, ownership and control over institutions of higher education were

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stringently guarded for the sole purpose of furthering the designs of the New Economic Policy (NEP). The fact that a licence for a private university was given to the MCA was a major turnaround in the history and politics of Chinese education in the country. Another issue which redefined UMNO’s stature within the National Front was its preparedness to relent over another “sacred cow”. This was over the issue of loosening the “quota system” for university admissions. In early 2001, debates and controversies were generated on a proposal to dismantle the ethnic “quota system” for determining the distribution of entrants into universities. Later on, UMNO showed itself to be more acquiescent than the MCA at accepting the use of English in national schools. In the later part of 2002, differences between the MCA on one side and UMNO and Gerakan on the other began to take shape. This was brought to the fore over the issue of protests against the construction of a highway called the Penang Outer Ring Road (PORR). The project would cut across portions of prime residential areas within Penang island. In May 2002, the Malaysian Highway Authority revealed the proposed construction of the RM1.02 billion road project, triggering protests by affected house-owners, and environmental and consumer groups. By November 2002, the Penang state opposition representatives had put forward a motion to shelve the controversial project. At this point, two Penang State Assembly representatives, Lim Boo Chang and Tan Cheng Liang of the MCA, abstained from voting against this opposition-sponsored motion and created a flurry of angry reactions from the other partners within the BN. UMNO and the Gerakan (the leading party in the BN coalition, which controls the Penang state government) were particularly adamant that severe disciplinary action be taken against the two representatives — that is, expulsion from the party. However, some MCA leaders, notably Ling Liong Sik and his faction were not in favour of this proposal. Next to UMNO, the MCA is the largest and richest party within the BN, and in the early stage of the crisis, Mahathir seemed to be in favour of the stance taken by Ling’s faction. Such a position was, however, in opposition to that of hardliners, Abdullah Ahmad Badawi and Najib Tun Razak, who “… secretly fear that a weak Umno and a strong and uncontrollably assertive MCA in the post-Mahathir period would be ‘destabilising’ vis-à-vis Umno’s hegemony in the National Front as well as the government”.21 In the above intra-party imbroglio, the real issues constituting the objections against the highway were put aside. The issue of the duo’s suspension appears to stress a point about how the pecking order of the two Chinese-based parties within the BN should be placed. The rivalry between the MCA and Gerakan was aggravated after the 1999 general election. The MCA seemed to have been victorious in terms of its role in helping UMNO candidates win in raciallymixed constituencies. The number of seats won in the state of Penang by the MCA and Gerakan candidates was almost equal and, in fact favoured the MCA after two Gerakan assemblymen defected to its side. However, the MCA

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did not secure the Chief Ministership for its candidates and, hence, was unable to control any state. With two presses under its belt (the English daily, The Star, and the vernacular paper, Nanyang Siang Pau) as well as in control of a full-fledged university, all that the MCA seemed to lack was the jewel in the crown — possession of a state. Given all this, the party must have felt confident enough to stand its ground on matters involving local-level politics, and one that could ultimately be used to its own advantage. The PORR highway issue widely affected the sentiments of middle-class Chinese voters within the state. Aware that the project was unpopular among some strategic sections of this community, the MCA knew that they could tap into this discontentment to make some headway for its electoral future. However, what the MCA ended up doing was to annoy UMNO. The issue of disciplining the two state representatives took on a revealing twist when the so-called “second generation” leaders within UMNO insisted that the MCA be reprimanded for allowing recalcitrance among its representatives. This was particularly so when UMNO had an important stake in the project itself, through the consortium Peninsula Metroworks Sendirian Berhad, which was awarded the project.22 This was UMNO flexing its muscles and giving the message to the MCA that it would not tolerate a much too strong MCA within the coalition. An UMNO that is conscious of losing its primus inter pares status was well aware that an MCA that could act independently of the will of the rest of the party was a party that had become quite formidable. In the end, the MCA disciplinary committee decided on an indefinite suspension of the two. This was much to the chagrin of UMNO leaders such as Abdullah Ahmad Badawi, who did not seem satisfied that the suspension was only for an “indefinite period”.23 Later, even Mahathir conceded that a more serious punishment should have been imposed on the two assemblymen.24 In this episode, the MCA had particularly irked UMNO, first by not backing a highway project in which the latter had a direct material stake, and secondly by demonstrating its “independence” in not toeing the coalition line, on which UMNO had always been calling the shots. Gerakan, on the other hand, had little choice but to back the project pushed by UMNO. Many of its own representatives were probably not in favour of the project as a few had chosen to be absent when the motion was tabled at the State Assembly. Gerakan was too dependent on UMNO support for electoral purposes to openly desist UMNO pressure. UMNO, for this reason, would rather back a Gerakan-led state government than one headed by the MCA. For many observers, this turned out to be not so much a conflict between the MCA and Gerakan, but an episode that mirrored the power play between UMNO and the MCA. Furthermore, this had become the second sign of an UMNO forced to slightly buckle under the increasing “weight” of a non-Malay party. The first was when the MCA successfully negotiated with the Cabinet Committee to exempt Chinese schools from switching completely to English in the teaching of Science and Mathematics subjects in schools.25

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In such episodes as the above, any augmentation of benefits by UMNO’s non-Malay partners would inevitably lead to the diminution of UMNO’s power to obtain support from its Malay constituency. This was, after all, the extraordinary advantage that only UMNO had in the consociationalism; giving it the special trump card to amass an almost unyielding Malay loyalty. UMNO is aware that once this support is allowed to slip away because of its inability to stay on top of the ruling pact, it would have to weigh the gamble whether it would be better to save the coalition at the expense of its own dominance, or try to maintain the latter at whatever cost. In the end, the fiercest struggle for the BN to stay afloat would be acted out within the coalition rather than outside of it. For civil society, this may be the beginning of the birth of a new political model for participative democracy not confined to the old social contract. Cultural Divisiveness and Islamization: PAS Versus UMNO If the above episode is a reflection of tensions between the MCA and UMNO, with implications upon the consociational contract, issues involving rivalry between PAS and UMNO would have a consequence upon the cultural cohesiveness of the nation. In this regard, the stability of ethnic relations was potentially perilous in 2002. Islamization took on a more enlarged foothold in the institutions of governance. One of the most important potential sources of cultural divide that began to take on a heightened dimension was the issue of the Islamic State and the enactment of Islamic criminal laws, or hudud. In August 2002, the PAS-dominated State Assembly of Terengganu voted for the passing of hudud laws for the state. This enactment, formally known as the Syariah Enactment (hudud and qisas), covers offences such as illicit sex (zina), for which offenders will be stoned to death; and theft (sariqah), the punishment of which is the amputation of limbs. Furthermore, robbery (hirabah) and apostasy (irtidad) are both punishable by death, while consumption of alcohol (syurb) is an offence which carries 40 lashes. Many of the provisions of the law already covered offences under the federally established penal code, and many are Draconian, discriminatory, or inhumane by contemporary human rights standards. The code was meant to be applied only to Muslims residing in the state, but nonetheless, it caused uneasiness among non-Muslims who feared the ultimate extension of such laws to the general citizenry. The passing of the hudud also had many legal, political, and cultural implications. First, legal opinions could not unequivocally agree whether the circumstances and provisions of the legislation were actually in contravention of the federal constitution. Related to this, the question of whether the hudud can ever be enforced became another unresolved issue as the police force (under federal jurisdiction) declared that they would not use their powers for enforcement as there were doubts surrounding the constitutional status of the law. Although the hudud is a “hung” law, the fact that it had been passed in both the states of Kelantan and Terengganu will hang like the sword of Damocles

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over the heads of those fighting to preserve the secular foundation of the nation. The political implication of the passing of the hudud was that it would be practically impossible for the government itself to reject it. While the UMNO and BN-controlled national newspapers played up the views of the dissenting voices (particularly women’s)26 against this law, when it came to the crunch even the UMNO state representatives (minority though they may be) did not dare to vote against the bill but merely abstained from it. Decades of playing the politics of raising-the-Islamic-ante between UMNO and PAS has left UMNO itself stumped by all these new developments and cowed by the show-of-force by PAS to successfully push through its own Islamization agenda. With these issues regarding the Islamic state and Islamic laws, UMNO finds itself unable to escalate the ante over PAS unless the agenda eats its way into entrenched secular institutions. The enactment of hudud laws, although unresolved in its legality, posed a challenge to the federal constitution by presenting itself as a harbinger of a parallel legal system that would divide the citizenship status of Muslims from non-Muslims within one nation. The only saving grace at this point is that in December 2002, the Terengganu government decided to put off the enforcement of the hudud enactment indefinitely, perhaps because of the unfavourable national and global mood over the stridency of anything politically Islamic.27 Human Rights and the Anti-Terror Policy Besides the tenuous balancing acts involving economic, religious, and ethnic accommodation that the Mahathir government has had to juggle with, in order to keep national stability intact, it also had to be responsive to the U.S.led campaign against global terrorism. Mahathir called upon President Bush at the White House in May 2002. This significant visit signalled a thawing of previously cold relations between Malaysia and the United States. The verbal sparring between officials in the Bill Clinton Administration and the Malaysian Prime Minister over the arrest and jailing of Anwar Ibrahim, over Malaysia’s justice system, human rights and its handling of the financial crisis, died down with the events of 11 September. The United States was looking for a partner in Southeast Asia in its fight against terrorism and Malaysia seemed to fit the bill in the wake of Mahathir’s Washington visit.28 Thus, Malaysia was actually both courted and implicated by the United States in its war against terror. For example, some of those detained under the Internal Security Act (ISA) were alleged by American authorities to have had links to the actual planners of the 11 September attacks.29 The United States had also issued a travel warning, “blacklisting” Malaysia as one of the places for American travellers to avoid. Malaysian authorities naturally reacted to this with outrage. This notwithstanding, Malaysia employed the ISA to detain scores of suspected Islamic militants.30 On a positive note for the Mahathir government, the clampdown on Islamic activists after 11 September has been successful in

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slowing down the march of the Islamic opposition. On the negative side, the widespread use of ISA may erode the UMNO-led government’s legitimacy as it is predominantly used against Muslims and may even augur a more extremist backlash because of this. As if conscious of this possibility, government bodies have sent mixed signals about the relevance of the ISA. On the one hand, the legislation is officially touted as Malaysia’s exemplary contribution to the fight against global terrorism; on the other, it is also being criticized by government representatives as being an instrument that compromises human rights standards.31 So far, however, public reactions against the arrests under the ISA have been subdued, especially after the Bali bombing in October 2002. International and Regional Relations: A Quarrelsome Year In foreign policy, Malaysia’s stance carries with it shades of the dilemma that it experiences with the national situation. It is caught between trying to maintain its resolutely sovereign and nationalistic stand, while at the same time falling under the shadow of major world powers in the wake of the U.S.-led war against terror. This has put the country in a difficult spot. While 11 September may have breathed a new lease of life into a once beleaguered government under threat from the Islamic opposition, it has also brought forth new dilemmas. The government does not want to acknowledge foreign intelligence presence in weeding out terrorist cells in the country, but it wants to use this opportunity presented by the anti-terror war to discredit the Islamic opposition. However, the latter gives credence to foreign allegations that Malaysia may not be a safe haven for foreign investors nor a desirable destination for tourists. Compromising on economic imperatives is not something that Malaysia can afford to do at this juncture of its development. The Mahathir government wants, at the same time, to capitalize on foreign policy issues to gain national mileage.32 The ongoing animosity in Malaysia– Singapore relations has been a subject of extensive scrutiny.33 One of Malaysia’s most important unresolved foreign policy issues was over the revision of the price of untreated water sold to Singapore. In 2002, numerous rounds of negotiations were conducted between the two countries over this issue. Malaysia wanted the price of water sold to Singapore to be increased in accordance with market value, while Singapore argued that the legal opportunity for Malaysia to do so had already passed at the end of a specified period. The year ended with no satisfactory agreement reached by both sides. Malaysia also bore the brunt of some harsh criticisms over its handling of illegal labour migrants from Indonesia. A new law was enforced in August which allowed a certain grace period for all illegal migrants to voluntarily leave the country. After this period, those who were caught overstaying would be subjected to mandatory whipping. This had invited angry reactions from Indonesian politicians, particularly the speaker of the Indonesian legislature (Majlis Perwakilan Rakyat or MPR), Amein Rais, who strongly reprimanded

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the Malaysian leaders for humiliating Indonesian labour through their use of inhumane laws.34 Another issue in the same light was the troubled diplomatic relations with the Philippines over the case of a minor, allegedly raped at a Sabah detention centre, before being deported to the Philippines. As it turned out, she was not even a Philippine national but born to a Malaysian father and a Filipino mother. Irate letters and words were exchanged between the leaders of both countries, starting with President Gloria Arroyo who shot a protest letter to Prime Minister Mahathir at the start of the rape allegation.35 The girl was finally brought back to Malaysia, and presently awaits the trial against her perpetrators to commence. Malaysia also made caustic remarks at Western nations over travel warnings issued to dissuade their citizens from travelling to Southeast Asia. Malaysia was specifically identified as either being one of the targets of terrorist activities or as being a regional base of the Al-Qaeda.36 Malaysian leaders even likened such descriptions of the country to economic sabotage. Although they tried very hard to challenge the perception that Malaysia was not a safe tourist destination, they actually heeded the warning by arresting some five alleged militants within the same week that the travel warnings were issued. There were also vehement protests against the United Nations and a writer, Rohan Gunaratna, whose book, Inside al-Qaeda, had drawn a link between the ruling National Front to the Al-Qaeda network via ties with the Filipino separatist group, the Moro Islamic Liberation Front (MILF). There were threats to take legal actions against the writer and a stern request was made to the United Nations to remove the reference from its report which had cited Gunaratna’s study. Ironically, this same writer was subsequently invited by the government think-tank, the Institute of Strategic and International Studies (ISIS), Kuala Lumpur, to give an exclusive closed-door briefing on the subject of the terrorist threat to the region.37 Yet another heated retort was made against Australian Prime Minister John Howard’s declaration that Australia may take pre-emptive action in any country where suspected terrorists planning to harm Australian interests may be found. Mahathir threatened to review Kuala Lumpur’s co-operation with Canberra, using strong words such as, “He (Howard) has obviously been very arrogant and we have never had any good relations with him at all”,38 and later, “yes, I think he is something of a white supremacist.”39 As the year drew to an end, Malaysia’s dispute with one of its regional neighbours over the ownership of an island, ended on a bright note for itself. On 17 December, Malaysia won a long-awaited decision from the International Court of Justice (ICJ) on its claim to the islands of Sipadan and Ligitan, off the coast of Sabah and Kalimantan. The territorial dispute arose in 1969 during a border delineation exercise when both Indonesia and Malaysia were unable to agree on the status of the two islands. After numerous bilateral talks in the late 1990s, the case, with the agreement of both governments to accept a binding decision, went to the ICJ. In a near-unanimous decision, the court

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ruled sixteen to one that on the basis of effectivites (effective control of the islands), Indonesia had no case for the claim.40 Bouyed by this judgement, Malaysia wasted no time in proclaiming its preparedness to take on Singapore over the disputed claim for the island of Batu Putih.41 Conclusion For many Malaysians, the year 2002 started on a jittery note. The repercussions of 11 September were ambiguously understood. The opposition coalition in the form of the Alternative Front (the Barisan Alternative or BA) was on the brink of a total break-up. The issue of the Islamic challenge was a looming national concern. Because of this, the Democratic Action Party (DAP) had taken the decision to leave the opposition coalition in late 2001 after unresolved disagreements with PAS over its persistence at pursuing the Islamic State agenda. As if to time his bolt from the blue with the DAP’s departure from the BA, Mahathir declared Malaysia an Islamic State. This triggered widespread public disquiet and debate in early 2002 over the understanding, debunking, or defending of the notion of the Islamic State for a multi-ethnic country like Malaysia.42 Soon after this, the Terengganu government introduced plans to adopt the Islamic criminal code, known as the hudud and qisas enactment. The Bill was passed as law in August 2002. By then, the public had become more attuned and informed as to the probable character of the Islamic State that a party like PAS would be introducing if voted into power. On a different tangent, Prime Minister Mahathir began to adopt a completely different strategy to resolve what he calls the ongoing “Malay Dilemma”: essentially his old passion for deconstructing the problems of Malay cultural backwardness and economic ignominy. His antidote was harsh and unflattering for the Malays, not least of all for the party which he leads. Having assailed the Malays for their own failure at achieving economic success and for his own failure at arresting such an adverse outcome, he announced his resignation as Party President and ultimately as Prime Minister at the end of the UMNO annual meeting in June 2002. The unexpectedness of such an announcement may have had a mildly earth-shattering effect on the country. After 23 June, with Mahathir’s imminent exit and the death of PAS’s leader, Fadzil Noor, the politics of the country began to assume a new profile. For the following half of 2002, it braced itself for a future that would be dubbed post-Mahathir Malaysia. There are many difficult issues as well as mammoth tasks ahead for Mahathir’s successor to resolve and undertake respectively. They range from finding a just solution to the Anwar crisis, to revamping the education system in order to restore the original goals of national integration and academic merit, to a rolling-back of state Islamization, to building up a new basis for economic competitiveness, and to adopting new political models for pluralism and participative democracy. One subject that will provide sustained discussion and debate would be the never-ending assessment of the true Mahathir legacy if and when he finally leaves the stage in October 2003.

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NOTES 1. “Askiah Adam, “Weekend Guest: National Interest, Security and Dr Mahathir’s Leadership”, New Sunday Times, 20 October 2002; and Brendan Pereira, “My Dad’s Intention to Step Down is Final”, Straits Times Interactive, , 29 October 2002. 2. “Mahathir Hints He May Not Contest Next Polls in 2004”, Straits Times Interactive, , 23 December 2002. 3. Mahathir Mohamad, “Focus: The New Malay Dilemma” (Text of a speech given to the Harvard Club of Malaysia, from , 30 July 2002). 4. The Election Commission reported that only 45,000 out of 2.1 million eligible Malaysians had registered to vote between July to September 2002. Furthermore, some half a million UMNO members were not even registered voters themselves. See “Editorial: Democracy in Malaysia”, New Straits Times, 21 October 2002. 5. “We’re On Track”, The Star, 28 November 2002. 6. Malaysia’s foreign direct investment (FDI) for the manufacturing sector fell some 84 per cent from January to May, compared with the same period a year earlier. The United States, Malaysia’s biggest investor, slashed its investment by more than half compared with the year 2000. See “FDI For Manufacturing Sector Falls 84pc Jan–May”, New Straits Times, 25 June 2002. 7. Ong Kian Ming, “We Must Get Serious About the Seamless World”, New Straits Times, 16 December 2002. 8. Y.S. Tong, “Malay Groups Join Chinese Educationists in Rejecting Language Switch” (From , 8 August 2002). 9. “Editorial: No Half-Measures, Please”, New Straits Times, 20 August 2002. 10. Some comments on this, “… Clearly not all Science and Mathematics teachers, exclusively trained to teach in Bahasa Malaysia, can teach their subjects in English. On the other hand, teachers trained to teach English can’t be suddenly deployed to teach Science and Mathematics.” See P. Ramakrishnan, “A National Will to Mastering English: Reflections on the ‘English language Question’”, Aliran Monthly 22, no. 4, (2002): 6; or, “No one is likely to read, write, speak English with passion, feeling, conviction, poise and not least, joy from mouthing theorems and explaining triangulations, etc.” See Wong Soak Koon, “No Quick Fix Please” Letters to the Editor, Aliran Monthly 22, no. 4, (2002): 35. 11. Jawatankuasa Bebas Isu Pengasingan Pelajar Mengikut Kaum Di Sekolah [Independent Committee on the Issue of Ethnic Segregation in Schools], Ringkasan Lapuran Jawatankuasa Bebas Siasatan Isu Pengasingan Pelajar Mengikut Kaum Di Sekolah [Summary of Report by the Committee], (extracted from The Star Online. , 22 March 2002). 12. Editorial, “Stopping the Mind Snatchers”, New Straits Times, 27 December 2002. 13. Brendan Pereira, “Mahathir’s 11 Months To Shape a Lifetime Legacy”, Straits Times Interactive, , 17 December 2002. 14. At the height of the Reformasi period, one of the most popular websites with the highest hits was one dubbed “Mahazalim”. Mahathir was ridiculed with the label, Mahafiraun, and his cruel deeds (towards Anwar) equated to that of King Pharaoh’s. Mahathir is particularly sensitive to this issue and would constantly harp on this example to prove the rampantness of a culture of hatred among Malays. 15. Text of speech presented at the UMNO General Assembly, 20 June 2002, cited in New Straits Times, 21 June 2002. 16. Nik Aziz, spiritual leader of PAS, claims that Mahathir has been trying to reach the goal of changing the Malays for the last twenty-one years ever since he took over the leadership. Instead, it is during his time that Malays have degenerated to become the highest perpetrators of social crimes and vices, and have been part of public scandals involving government-protected bumiputera corporations. Nik

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17. 18. 19.

20. 21. 22. 23. 24. 25. 26.

27.

28. 29.

30.

Maznah Mohamad Abdul Aziz Nik Mat, “Salah Melayu Atau Pemimpinnya [Fault of the Malays or their Leaders?]”, , 26 June 2002. Mahathir Mohamad, “Focus: The New Malay Dilemma” (Text of a speech given to the Harvard Club of Malaysia, from , 30 July 2002). Announced by the Minister in the Prime Minister’s Department, Datuk Seri Dr Rais Yatim. See “Laws on Malay Reserve Land To Be Amended”, The Star, 28 November 2002. The strategy was to persuade Muslim parents to send their children to national schools instead. The women’s wing of UMNO has been entrusted with the task of dissuading parents from enrolling in the religious schools, through using lines such as, “We don’t need private schools outside national schools which purportedly provide religious education. It is available in national schools”. See Rafidah Aziz, head of Wanita UMNO cited in “Explain to Parents, Wanita Leaders Told”, New Straits Times, 16 December 2002. Already, PAS is accusing the government of merely relenting to a U.S. post-11 September agenda. James Wong Wing On, “UMNO-MCA Cold War: Cracks in the Alliance”, Analysis Malaysiakini, 9 December 2002. The Executive Chairman of Peninsula Metroworks Sendirian Berhad is Datuk Ahmad Ismail, who is currently the Division Head of UMNO Bukit Bendera, Penang. “DPM: What Does It Mean?”, The Star, 17 December 2002. “UMNO Calls for Firmer Actions on Rebel Duo”, Straits Times Interactive, 23 December 2002. UMNO Youth was critical that the MCA would again get its way with the State Assemblymen issue, as it had over the English issue, See, “Koh: Other Reps in Assembly Knew the Whip Was On”, The Star, 14 December 2002. Of the various groups which protested (which included human rights and social reform organizations, including the opposition parties DAP and the Parti Rakyat Malaysia or PRM), only women’s groups actually came out in a concerted fashion to oppose the bill as the one credible basis for protest was the issue of treatment of women. The original draft of the bill was too starkly offensive in that it did not differentiate illicit sex from rape, and that rape victims themselves may end up being punished if there was insufficient proof for the allegation. See, “Women’s Groups: Pas’ Hudud Bill Inadequate”, New Straits Times, 10 June 2002. The Menteri Besar (Chief Minister) of Terengganu, Datuk Seri Abdul Hadi Awang, was quoted as saying, “… no date has been set for the hudud implementation.” The state government would first send a delegation to some West Asian countries and to Saudi Arabia to study its implementation. See “Hadi: No Date Set To Enforce Syariah Laws”, The Star, 12 December 2002. “Malaysia’s War of Words With U.S. Turns Into War Against Terrorism”, New Straits Times, 11 May 2002. Yazid Sufaat, one of about seventy suspected Islamic militants, detained under the ISA, was interviewed by FBI officers at the Malaysian detention centre in Kamunting in November 2002 for alleged links with hijackers of the American Airlines aircraft that crashed into the Pentagon on 11 September. The implication of this episode had less to do with nabbing terror perpetrators but more to drive home the point that Washington does not consider any country beyond its reach, not even a country like Malaysia, “whose government has been critical of key aspects of U.S. foreign policy in the past.” See Anil Netto, “War on Terror a Two-Edged Sword for Malaysia”, Asia Times Online. , 25 November 2002. In 2002, forty-two persons with alleged links with the KMM (Islamic Militant Group of Malaysia) were detained under the ISA. This brought the total number of those

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32.

33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

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arrested since the crackdown began in 2001 to seventy-four persons. See SUARAM, “Civil and Political Rights in Malaysia 2002: Executive Summary” (SUARAM Malaysia, unpublished report, 2002), p. 2. In a public forum organized by the National Human Rights Commission (Suhakam) and a government think-tank, the Institute of Strategic and International Studies (ISIS) a message was sent out that the ISA should not be freely used in the American-led campaign against terrorism. See I. Izatun Shari, “Seek Balance Over ISA, Government Urged”, The Star, 21 December 2002. An unresolved state of affairs may mutually work to the advantage of both sides, boosting the nationalistic appeal of both the Malaysian and Singaporean governments. See Andrew Aeira, “Why Can’t They Sort Things Out”, Aliran Monthly, 22, no. 10 (2002): 39. In December, UMNO and PAS members protested in unison against Singapore’s claim over the island of Pulau Batu Putih. See Brendan Pereira, “Anti-S’pore Sentiments at New High”, Straits Times Interactive. , 27 December 2002. K. S. Nathan, “Malaysia–Singapore Relations: Retrospect and Prospect”, Contemporary Southeast Asia 24, no. 2 (August 2002): 385–410. Amein Rais, “Tragedi TKI Kita” [Tragedy of Our Immigrant Workers], ADIL: Berita Politik Populis, , 29 August 2002. “M’sia–Philippine Ties Under New Strain Over Rape Allegation”, Malaysiakini.com. , 5 September 2002. Indonesia Backgrounder: How the Jemaah Islamiyah Terrorist Network Operates. Asia Report No. 43 (Jakarta and Brussels: International Crisis Group, 11 December 2002). Yap Mun Ching, “Rohan: Malaysia Targeted by al-Qaeda Since Januar y”, Malaysiakini.com, , 12 November 2002. Cited in “KL May Review Co-operation With Canberra”, The Star, 5 December 2002. Cited in “Howard a White Supremacist, Says Dr M”, New Straits Times, 12 November 2002. “Our Islands: ICJ Awards Sovereignty Over Sipadan and Ligitan to Malaysia”, The Star, 18 December 2002. Sa’odah Elias, “Next Claim: Government Now Focusing on Pulau Batu Putih, Says Pak Lah”, The Star, 19 December 2002. See, for example report of a public forum on the issue: Anil Netto, “Islamic State or Constitutional Democracy; Who Is The Nation?” Aliran Monthly 22, no. 2 (2002): 11–12. On the issue of the Islamic state and debates within the component parties of the BA, see Susan Loone, “PRM Believes in Religious Freedom, Rejects PAS’ Islamic State Concept”, Malaysiakini.com, , 5 June 2002.

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MYANMAR

Southeast Asian Affairs 2003, pp. 171–88

MYANMAR Reconciliation — Progress in the Process?

David I. Steinberg

Two significant, electric developments occurred in 2002 in Myanmar, a country in which political change in the past decade had seemed glacial.1 The implications and effects of these turns of events, however, remained indeterminate at the year’s end. These two events were the release from house-arrest of one important figure and the effective imposition of such arrest on another, and his later death from natural causes. Daw Aung San Suu Kyi, leader of the opposition National League for Democracy (NLD), was freed, and former General (also former President and Chairman of the Burma Socialist Programme Party until 1988) Ne Win and his influential daughter Sanda Win were placed under effective house-arrest.2 General Ne Win died on 5 December 2002. In a sense his death was an anti-climax. Both developments may have been interrelated. Both should have been causes for optimism. However, at the year’s close, frustration and pessimism seemed more prevalent reactions. Although internal events predominated during this period, foreign relations, especially with Thailand, became significant too, and were not divorced from domestic concerns. The Release of Aung San Suu Kyi More excitement concerning Myanmar whirled through international circles in 2002 compared with the May 1990 elections in that country and the subsequent year in which Aung San Suu Kyi received the Nobel Peace Prize. At that time, and since 1989, she had been under house-arrest, and was only released in 1995. On 6 May 2002, the military junta, known since 1997 as the State Peace and Development Council (SPDC), released Aung San Suu Kyi after nineteen months of modified, de facto house-arrest, her second, with the promise that she could travel internally and engage politically in rebuilding the opposition National League for Democracy (NLD), with which she has been associated and which the military had methodically castrated through the arrest of many of its key members and the closure of numerous local offices. She has assiduously responded with early travel, including visiting government projects in central Myanmar and undertaking a tour of the Shan State in November. DAVID I. STEINBERG is Distinguished Professor and Director of Asian Studies, School of Foreign Service, Georgetown University. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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Yet the release had its anomalies. A large contingent of the international media were given visas and invited to the event, and she was accessible to them. Yet in the official English-language press release her name was not mentioned and the government statement simply said: “Today marks a new page for the people of Myanmar and the international community.” It went on to note that 600 detainees had been released in recent months, that the government would continue its fight against terrorism, the total eradication of narcotic drugs and HIV/AIDs, and “we shall recommit ourselves to allowing all our citizens to participate freely in our political process, while giving priority to national unity, peace and stability of the country as well as the whole region”.3 There was also no announcement at all in the Burmese-language media that this release took place, although everyone immediately knew in Yangon (Rangoon) and in major cities. Rumours had spread and multiplied with amazing rapidity because of, rather than in spite of, the rigidly controlled and censored press and television. Yet the mood in Yangon following her release was not as optimistic as that outside the country. Although pessimism would be too strong a term to apply to attitudes that seemed to prevail at that time in informed, private circles, a degree of caution was evident that was distinctly at odds with the virtual euphoria in external media circles. This gap has important potential implications. The lack of substantive progress in the reconciliation process during the remainder of 2002 was evident, and the disappointment, even the disillusionment, of foreign officials and informed observers evident. If some significant, positive changes are not forthcoming in the near term, this gap may prompt even more despair over progress in the political process than had been evident earlier, and could result in international condemnations and further sanctions against the military. Wherever the problems with compromise may lie, the military regime will be seen to be responsible. Questions were immediately asked: why her release and why at this juncture, what prompted it, and what are the implications of it for the future of the state, its administration, and most importantly its people? That she had to be released at some point was evident; international opinion would not countenance indeterminate seclusion. Yet each advocate of policy or observer of the problems of that country had a theory, although those outside the closely controlled military élite can only speculate on the answer or answers. Some noted the dire economic straits into which the military regime has fallen, illustrated by the tumble in the unofficial or accommodation value of the local currency, the kyat, to about K800 to the U.S. dollar at the time of the release (by the end of 2002 it was hovering around K1,100). Significantly, there was a growing gap between the value of foreign exchange certificates (FEC, supposedly at par value with the U.S. dollar) and the dollar itself, indicating that the government did not have the resources to back such currency. Some noted that U.S. and European Union sanctions had dried up major foreign investment,4 while others believed that the still parlous state of

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some Asian economies were responsible in spite of their considerable recovery from the Asian financial crisis of 1997. Others cited the need for international acceptance of the regime that has virtually become an international symbol of pariah status. Others considered it to be prompted by the Burmese military’s concerns about potential U.S. intervention especially, however far-fetched this possibility seemed from foreign vantage points, after the events of 11 September 2001; they cited Afghanistan and previous U.S. military actions against states with which it was in some conflict. Others considered that the intervention of the United Nations, through the good offices of UN special ambassador Sri Tun Razali Ismail (his last visit was in November 2002), had created at least minimum conditions for dialogue, which had secretly proceeded since October 2000 through a series of more than sixty meetings between representatives of the SPDC and Daw Suu Kyi. Each of these theories could be presented with some justification, and are not mutually exclusive. Each of these conditions must have influenced to some degree the milieu that affected events. There are, however, other circumstances that seem likely to have affected policy as well. Many speculate that the January 2001 visit of Prime Minister Mahathir Mohamad of Malaysia to Yangon, at which time he is said to have urged the military to compromise with the opposition in some manner, was salutary to the process (although his visit in August 2002, with a large contingent of Malaysian businessmen, put a damper on political progress when he was quoted as saying that the process towards democratization was likely to be slow). Ambassador Razali is close to the Malaysian Prime Minister. A largely unheralded and subtle shift in U.S. policy may also have played a role. Although U.S. Department of State officials could later accurately testify to the U.S. Congress that there had been no change in U.S. policies related to its sanctions on new investment in Myanmar, there had been an important policy modification. In a February 2002 State Department statement on conditions in Burma/Myanmar, there was no mention for the first time of the necessity for the military junta to adhere to the results of the May 1990 elections and turn over power to the NLD, which had then won an overwhelming victory, garnering some 80 per cent of the contested races. Such previous insistence by both the NLD and the United States simply solidified military intransigence in giving up power. The February 2002 statement, however, called for progress: “Our goal in applying these sanctions is to encourage a transition to democratic rule and greater respect for human rights. Should there be significant progress toward these goals, the United States would look seriously at measures to support this process of constructive change”.5 The Department of State also subsequently clarified its position regarding lending to Myanmar by the international financial institutions (IFI), including the World Bank, the Asian Development Bank, and the International Monetary Fund. While reiterating that lending to Myanmar would not be considered until progress

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towards reconciliation had taken place, a Department cable said: “although the time is not ripe to reconsider providing IFI development assistance, the [State] Department supports IFI technical assistance, education, and fact-finding missions inside Burma that would facilitate the collection of economic information provided that it is not of a nature that would require a board approval”.6 This policy was in sharp contrast with that of the Clinton Administration, especially the close personal relationship that had grown up between Secretary of State Madeleine Albright and Daw Suu Kyi. Such a pronouncement, however, quiet as it was, could not have been issued without some concurrence from the opposition, which has its own indirect access to key members of the U.S. Congress. Although Senator Mitch McConnell, a staunch supporter of the opposition (and in January 2003 the Republican Party whip), would later call for regime change in Burma and Cambodia (echoing the Iraq issue), an important, quiet, and likely positive shift had taken place. This shift may have been a factor in the timing of her release, for it seemed responsive to the dialogue that was continuing. Without such a modification in policy, no improvement in U.S. relations would have been possible. The release may also have been prompted by high-level UN concerns that action was badly needed to alleviate the political stalemate in the country. An additional element could also have been the concern that the United States might impose additional sanctions on Myanmar through the imposition of a ban on the import of textiles from that country. Myanmar-manufactured textiles have become a major source of foreign exchange, rising from some tens of millions of U.S. dollars to about US$422.1 million in 2001, an increase from US$186 million in 1999, and is the second largest export earner for Myanmar after natural gas. Myanmar is attractive to foreign garment manufacturers because it has a very low-cost, literate, and controlled labour force; Myanmar also provides an opportunity for suppliers in foreign countries which have constraints on U.S. textile and garment import quotas, to use the under-utilized Myanmar quota. Employment in textile factories is significant; it is said to involve some 350,000 workers (mostly women) in 400 factories. A U.S. State Department document noted that with the lapse of the multi-fibre agreement on 31 December 2004, China would dominate in this field. “Thus, the post 2004 quota elimination environment would have a serious if not devastating impact on Burma’s robust textile sector. In short, it may cease to exist”.7 The effect on Yangon standards of living could be significant, and its political impact could well be important. It seems highly likely that had not the tragedy of 11 September 2001 and the Enron and other corporate scandals intervened, sanctions on textile imports might have been imposed earlier. Should there be no progress in the reconciliation process, this could yet occur. Although speculation remains rife on the timing of the release, a further factor may have played a role in the process. This is the eclipse from power of the person who has been the most influential, if not the most efficacious,

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individual in the history of modern independent Burma/Myanmar — that is, the effective house arrest of U Ne Win and the elimination of all members of his family from power and influence. General Ne Win: All in the Family General Ne Win has been the most critical, deleterious, personal force in modern Burma/Myanmar. His influence has been paramount, as the official holder of effective power (1958–60 and again 1962–88), as the person who was a decisive force behind the scenes (1949–58, 1988–2002), as commander of the armed forces and Chairman of the (military) Revolutionary Council, and in his civilian roles as President, Head of State, and Chairman of the Burma Socialist Programme Party (BSPP). His status and power was enhanced through the promotion to positions at the highest levels of state authority numerous members of his entourage who served under him when he commanded the Fourth Burma Rifles prior to independence, and the influential roles of his family in policy determinations and in the economic sphere. All these made him the pre-eminent influence in that society for over half a century. Stories of Ne Win’s influence over SLORC/SPDC, always denied by high authorities among the military, have constantly fed the rumour mills of Rangoon and later Yangon, even after July 1988 when he retired from the Chair of the Burma Socialist Programme Party, the only legal political party at that time. Some have claimed that certain members of the élite military, such as General Khin Nyunt, head of the ubiquitous military intelligence, were especially close to him and his family, and were said to consult him surreptitiously on key decisions. At age 91, it seemed evident that mundane matters were outside his ken, but it is difficult to believe that on fundamental decisions, especially the appointment of leaders, he did not have at least the role of acquiescence. No other single person has so affected the state, variously as a modern Louis XIV and later as an eminence gris — a contemporary Cardinal Richelieu. Referred to as the “old man” or by one of his titles (including Bogyoke or generalissimo) and not normally by name, it seemed almost as if the taboo on the use of the Chinese emperor’s personal name were transported to Myanmar. The official version of events was that Ne Win’s three grandsons by his daughter Sanda, together with her husband, Aye Zaw Win, were involved in an attempted coup against the military regime. They were said to have met on 7 March 2002 with some army officers “conspiring to seize State power and trying to cause antagonism and division within the Tatmadaw (armed forces)”. Major-General Kyaw Win, deputy chief of military intelligence and supposedly close to Senior General Than Shwe, said that they “… attempted the plot as they were not satisfied by the government’s action against some unsystematic business they were involved in and for which they had to give up privileges.… They were also not satisfied with the government’s priorities on ethnic groups and the political and economic changes the state’s leaders were making. Therefore, they were discussing forming a new government after making some

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top-level changes”.8 They were arrested, along with those in the military with whom they were said to be involved, tried for treason, and found guilty by the court on 26 September, and sentenced to death. Their appeal at the close of 2002 was still pending. It is likely that the death penalty will be changed to a long sentence, and they will serve a relatively short period. The charge of a serious coup attempt is less than credible, however, since the Yangon military command was not mobilized. Although there may well have been discussions with some officers concerning the family’s disaffection with the present leadership, this did not seem to be a significant threat to the ruling élite. Some credit the falling out of the Ne Win family with the present regime to financial conflicts and competition for access to business contracts and opportunities among the children of the military high command, and others attribute it to the wild actions of Ne Win’s grandsons, who are said to have acted violently beyond all law and regulations and to have been warned to reform, but without effect. Prevalent in Yangon for years have also been stories of the mutual antipathy between Ne Win’s daughter Sanda and Aung San Suu Kyi, and Ne Win’s personal dislike for her. He also had smarted under her father, Aung San, before the latter’s assassination in July 1947. Because of Aung San’s unquestioned prestige, during the BSPP period Ne Win obviously and carefully culled from Aung San’s writing quotes that could be used to support his actions, although these effectively disappeared after the coup of 1988 and the growing influence and popularity of Aung San Suu Kyi. Aung San’s ubiquitous picture disappeared from all offices and buildings, and his likeness was taken off the currency as well in an obvious attempt to diminish Daw Suu Kyi’s influence. After the purported coup attempt, Ne Win and Sanda Win were put under confinement at the family compound on Inya Lake in Yangon. The marginalization of Ne Win and his family may have been a factor in the release of Daw Suu Kyi, giving the SPDC more room to manoeuvre.9 Although it is highly unlikely that it was the sole element in the release, it may have played a supportive role. This event was highly significant, however, and where it might have been a cause of moderated optimism, this has not proven to be the case. It also signalled a solidification or redistribution of power at the apex of the military. As long as Ne Win was around and felt to be in a position of some influence, it seemed unlikely that any other high military official would attempt to, or allow himself to be perceived to, assume his pre-eminent role. Thus, since the spring of 2002, Senior General and Chair of the SPDC Than Shwe has emerged as the critical and paramount leader of the state and of the military. As Ne Win’s influence has withered away, if not that of the state under Marxist doctrine, so has General Than Shwe’s blossomed. At his death, Ne Win had virtually become a non-person. Only about twenty people attended his funeral, none from the higher echelons of the SPDC, and his ashes were thrown into the Rangoon River. Had his death come

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earlier and quickly, without time for someone to solidify his position at the apex of the hierachy, then there might have been a contentious struggle for power. Senior General Than Shwe seems now in command in a manner very similar to the authority that General Ne Win once held. Any key decision must be made or approved by him, and his imprimatur on political conciliation or economic reforms will be required. He has not, however, indicated interest in the latter. As Ne Win built up his entourage based on personal loyalties, so too will Than Shwe ensure the dominance of his position. Although General Than Shwe is 69 years old and beyond military retirement age, if there were to be a transition to some form of new administration, which seems inevitable over time, he may well continue to play influential roles in a longgyi (that is, in mufti). As the personalization of power and the development of loyal entourages under a leader has been evident under the various incarnations of Ne Win’s administrations, so there will likely be a continuation of such roles into the future. Optimism is held in check by traditional concepts of political power. The Reconciliation Process The reconciliation process which was to have begun on the release of Daw Suu Kyi seems to be in its embryonic, perhaps even pre-conception, stage, and where hopes were earlier widespread abroad, pessimism has set in. Given the number of meetings that were held between the two sides, it would have been natural to assume that agreement had quietly been reached on a variety of fundamental issues, if not the details, such as a general roadmap for political change, a timetable for a new constitution, and some form of interim administrative arrangements. This does not seem to have been the case, however. Aung San Suu Kyi’s ability to travel and to reopen some branch offices of the National League for Democracy have been conspicuous (although never mentioned in the local press), and the tone of the comments by her as well as by the government have been generally temperate and measured. These positive signs have been undermined by the lack of any public statements indicating serious discussion of these and other core issues. Furthermore, the minorities have yet to be effectively included in any negotiations about the sharing of power. As minority rights and regulations and the relationship between the majority Burmans and the various ethnic minority groups remain the most fundamental problem facing the state over the longer term, this issue will be watched with great care by those concerned with the future of the country.10 Ambassador Razali, who has stressed inclusion of the minorities, returned from his ninth trip to Yangon in mid-November discouraged by the lack of progress. Yet after his departure, the SPDC issued a laudatory English-language press release about his visit, and released 115 political prisoners. The reconciliation process, if it is to move ahead, must necessarily create internal tensions on both sides of the negotiating table. Compromise is required.

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Although it is difficult to pinpoint the position of individual military leaders concerning the degree to which each believes power ought to be shared and the future roles of the military under some new political configuration, it seems more than likely that there will be some internal debate among the tatmadaw (armed forces) élite before the final decision is reached by the primary leader. The NLD itself will have similar problems, both within the country and among its supporters abroad. Aung San Suu Kyi needs to make certain demands on the military for her own credibility and yet to compromise on other issues. The most obvious of her requirements has been the release of political prisoners; she cannot be seen to be free without insisting on her colleagues having the same status. Since the spring of 2002, more than 400 have been released. There is said to be some agreement on the remaining list of NLD members who have been and are still imprisoned. More controversial are likely to be the compromises that must be made to have a working relationship with a military, which under any new political arrangement will continue to play important roles. For example, some in the NLD have publicly called for the authority to publish a newspaper or newsletter, but all publications are subject to rigid censorship and control. Even more importantly, if some reconciliation were to take place, then how would the country deal with past excesses or crimes by elements of the military? If punishment were strictly based on justice and higher or lower level military tried for crimes, would reconciliation be possible with key figures feeling threatened? That seems unlikely, as the military would wish to retain authority to prevent such retribution. If, however, retribution were denied or limited, would that satisfy those who clearly have suffered under military rule? What about the supporters of the NLD abroad — the large group of human rights and democracy advocates who have been even more orthodox in their search for justice than many in the NLD in Yangon? They are likely to be in an ambiguous position. Thus, the road towards reconciliation is still uphill and arduous, and the road map may not exist, or be obscured. In any compromises that are likely to be reached, should they occur, there seem to be three points on which the military will not compromise in addition to the issue of retribution. These are the requirement of national unity, the autonomy of the military within any state administrative structure, and the retention of their economic assets outside of the state economic enterprises — that is, the public sector. The unity of the country has been a hallmark of the military ideology since independence. The Panglong agreement of 1947 that forged the Union of Burma, and the subsequent constitution of that year were unrealistic in its provisions that the Shan and Kayah states could opt for independence after a ten-year hiatus and a referendum. Many of the minority groups now call for a new Panglong agreement based on “federalism”, which to the military

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means the first step towards secession, and is thus anathema. Yet the most enduring issue facing the state, which has been unitary in character since the coup of 1962, is the sharing of some aspects of power between the centre and the minority periphery. This has been a critical issue that has delayed the National Convention, tasked with creating a new constitution, from reaching closure. The NLD itself is a Burman party, and does not represent the minorities although there are close relations with some minority parties. Tripartite dialogue (the SPDC, NLD, and minorities) has yet to take place. The NLD calls for civilian control over the military, yet it is evident that all planning by the military predicates their autonomy from civilian leadership in matters of internal military administration (promotions, assignments, etc.), budget, and national security. Even if some informal arrangements were to be reached, points of tension are more than likely. The military has extensive economic interests outside the normal public sector. These include the military procurement system that runs factories producing for civilian consumption as well as military needs; the Myanmar Economic Holdings Corporation, a military-owned conglomerate incorporated under the Companies Act and thus, theoretically, not subject to state control, and the Myanmar Economic Corporation, which was created by special edict and is completely under military authority. Through these organizations, which employ thousands of workers, they also have extensive joint ventures with foreign firms. By these institutional arrangements, as well as through the personal influence of military leaders in any new government, the military’s role in the economy is likely to be profound even if the market becomes more open, for through them the tatmadaw can create monopolies and influence prices.11 Economic and Social Conditions Stripped of its rhetoric and strident phrasing, the social goals of the SLORC/ SPDC are unexceptionable. National unity, improved health and education, better agricultural practices and production, a market economy, and the preservation of national culture[s] are goals that are internationally acceptable. In their own eyes, the military’s accomplishments have gone internally and externally unrecognized. The stress on the building of badly needed infrastructure has been the characteristic economic activity of this government, and the number of bridges built, the miles of road and railroads constructed, the dams built and irrigation systems expanded have been the subject of innumerable articles and stories in the controlled media and in international press releases. The opening ceremonies on such infrastructure projects vie with offerings to the sangha (Buddhist monkhood) for front page attention in the newspapers. The authorities feel that their efforts have gone unappreciated for what they have done for the country as a whole. Indeed, the spasm of construction

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since 1988 has been unprecedented in Burmese history, except perhaps for the building of pagodas in the period of the monarchy. In a sense, their appraisal is accurate, but legitimation through infrastructure construction, which seems to be the prevalent assumption on which much military energy is expended, raises other issues. Did such construction virtually force the printing of vast but unrevealed amounts of local currency to finance these structures and thus greatly contribute to uncontrolled inflation and also force the use of corvée labour for which the military has been severely chastised by the international community, including the International Labour Organization (ILO)? How many bridges, for example, are needed across the Irrawaddy, and could the funds for such expensive projects have been better used for social rather than physical infrastructure? If the state’s priorities are to improve health and education, could such funds have been better spent for these purposes since the government budgets for social services have declined in absolute terms and per capita and are far below per capita expenditures in other Asian states? Deterioration in the economy continued during 2002. The International Monetary Fund sent its periodic Article IV consultation team to Yangon on 4–16 July, and their report, which has not been made public, can be assumed to be so critical that the Burmese authorities have refused to allow it to be circulated. The kyat continued to slide, starting the year at K775 to the U.S. dollar and ending over K1,100, partly pushed by the closure of the Thai border for such an extended period. Although the Asian Development Bank could report that the economy continued to expand at a respectable rate in 2001, their estimates of 10.3 per cent seemed grossly exaggerated. Reports from some of the rural areas indicate severe food and rice shortages and growing malnutrition, although the breadth of such problems is unknown. The rice harvest is said to have been poor, fertilizer lacking, agricultural credit woefully underfunded, and state-required rice procurement policies at well below market prices make the peasant the most heavily taxed element of the population. External debt is US$6.042 billion, of which US$2.305 billion is to Japan. Inflation is running at about 60 per cent, yet bank interest rates stand at 10 per cent, and “private” bank loans at 15 per cent are mainly to government-related entities, thus further distorting the market and subsidizing the grossly inefficient public sector. The release of Daw Suu Kyi seemed to spur discussions over the agreement between the SPDC and the NLD on the need for humanitarian assistance. Such an agreement may have been reached in principle, but there has yet to be mutual understanding on the details and mechanics for such co-operation. The NLD maintains that it has always been in favour of appropriate assistance that do not support the military in power, but their pronouncements over the years have clearly been against such aid, as well as tourism and foreign investment not only because of the economic advantages to the regime, but also because such support carries with it some element of legitimation of that

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government.12 Yet even the term “humanitarian” aid conjures up different definitions: the West generally would regard it as basic human needs of health, education, agriculture, micro-credit, and the like, while the Japanese have expanded the term to include airport renovation and power generation through the rehabilitation of hydroelectric facilities, specifically at Belachaung in Kayah State. The United States, as the past principal exponent of the requirement that Myanmar should proceed immediately to democratic rule, has taken steps to move the process of change incrementally forward. It has agreed to assist in funding an anti-HIV/AIDS campaign inside the country with a grant of US$1 million through NGO activities (the United Kingdom has offered 10 million pounds over several years), and met in Washington with a senior military official to work on the conditions under which the U.S. Government would certify that Myanmar is in compliance with the anti-narcotics regime. The Myanmar authorities have hired an American public relations firm, DCI, which will concentrate on improving the relationship with the United States in the fields of anti-drug and anti–HIV/AIDS activities. Questions of human rights violations continued during this period. Charges were brought against the Burmese military for engaging in systematic rape of local women in the Shan State.13 The government denied any planned violence against women, but the cases presented seemed to indicate that extensive rape had taken place, countenanced at least by the local military authorities. The ILO has set up an office in Myanmar to monitor forced or corvée labour charges, which has been the most serious of international complaints concerning human rights in Myanmar. Although the overt level of intimidation of NLD activists engaged in party activities declined after the release of Aung San Suu Kyi, the same levels of censorship and control over the media prevailed. The report issued by the UNDCP (UN Drug Control Programme) on the first comprehensive opium poppy survey in the Shan State14 indicated that opium production in that region (by far the most important region for poppy production, although the Kachin State also has produced significant quantities) was a mean estimate of 828 tons, with an average production of 10 kg per hectare, on about 81,400 hectares. The farm-gate price for opium was about US$151 per kilogram, with a total value of some US$125 million. An estimated 241,700 households grow opium, and thus the mean household income from opium would be about US$500. At four persons per household, per capita income would be about half the national average. Eradication by the Myanmar Government amounts to some 8 per cent of production that year. The authorities believe that opium eradication in the Wa areas can be completed by 2005. The government announced a new initiative, the “New Destiny Project”, in which the country would be free of all opium production by the year 2005. However, the elimination of poppy production does not affect the production of chemically-based narcotics such as metamphetamines. In the case of the

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latter, it is either a lack of government control over the areas of production and distribution, or a lack of interest in their suppression. The narcotics issue is now not limited to the more traditional opium/ morphine/heroin patterns of production. Synthetic narcotics have become a newer and even more critical element which has caused relations with Thailand to suffer badly. International Relations: Do Good Fences Make Good Neighbours? International relations took a bizarre turn during 2002. Dealings between Thailand and Myanmar were strained to the point that the long border was closed between both countries from 22 May and only reopened on 15 October 2002. Stripped of diplomatic rhetoric, Thailand and Myanmar had engaged in surrogate warfare, each using a minority to defend its interests. Thailand has been inundated by the influx of some 700 million methamphetamine tablets in 2001, affecting an estimated 2.5 million Thai.15 This had become a political issue within Thailand. These drugs were said to have been produced by the Wa minority group in the Shan State of Myanmar, a group that has had a ceasefire agreement with the Myanmar authorities but is so well armed and powerful that it retains considerable autonomy. In their attempts to reduce opium production in Myanmar, in which the military has been reasonably successful, the tatmadaw had a target of moving some 50,000 Wa families (about 200,000 people) from the less agriculturally hospitable Wa region along the China border, where poppy production has been rampant, to areas close to the Thai border to assist them in engaging in alternative agricultural pursuits. The Burmese seem unable to control the Wa, and the Thai charge that the Wa have been engaged in this drug trade. The Thais have supported the rebel Shan State Army (SSA, also known as the Shan United Revolutionary Army or SURA), to counter the United Wa State Army. The Shan seem to have occupied some border posts, and the Burmese have fought back. This flare-up caused the closure of the total border between the two states. The border trade officially has been important to both countries since overland commerce became legal in 1988. Trade amounts to some 18 million baht per day (of which three million baht consist of Myanmar imports), and is probably much higher both through illegal or unofficial channels and through the undervaluing of commerce. Thus, the closure of the border has caused hardship on both sides, but especially to the Thai with their open political system and lobbying, to which the government must respond. Local politicians have pressured the Thai authorities to resolve this issue. From 22 May 2002, the Thai estimated that lost trade was valued at 1.8 billion baht, of which 300 million baht consisted of Myanmar imports into Thailand.16 The Burmese authorities mobilized their forces and engaged in a remarkably vicious propaganda campaign against the Thai. Extensive anti-Thai articles appeared in all the newspapers, some bordering on frenzy, and the Englishlanguage press was almost incomprehensible in their invective. Although

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Thailand is called “Yodaya” (Ayuthia, the Thai capital that the Burmese destroyed in 1767) in normal speech and is not considered a pejorative term in Burmese, the controlled press became almost hysterical in its denunciation of Thailand and used the term for the first time in its English publications. The military fostered rallies by the Union Solidarity and Development Association (USDA), the mass mobilization civilian organization controlled by the military with some 16 million members, as far away as the Indian border, to denounce the Thai and to uphold Myanmar sovereignty as interpreted by the tatmadaw. This must have been done at great expense. Each home or business was required to fly the Burmese flag under penalty of a fine. Finally, through the visit of the Thai Foreign Minister, a settlement was reached and the border trade reopened. The national hysteria created by the Myanmar authorities may have served a useful purpose for the military. Coming at about the same time as Suu Kyi’s release, it may have served to redirect attention from her and the NLD. More importantly, it was able to demonstrate to the Burmese people that the military’s primary mission, as it interminably reminds the people, is to uphold the sovereignty and unity of the state, and this struggle “demonstrated” effectively the validity of that claim, at least in the eyes of the authorities. Yet it is ironical that the Thai government, led by Thaksin Shinawatra, which was elected in January 2001, has been far more friendly to the Myanmar military than the previous government of Prime Minister Chuan Leekpai.17 As a senior official of the Thai government said, “Don’t the Burmese realize that we [the Thaksin government] are the best friends that they have?”18 Significant also was the absence of ASEAN’s role in negotiating this dispute. Neither side seems to have taken this issue to the ASEAN Regional Forum, which is the established mechanism for considering security issues. Myanmar and the War on Terrorism The war on terrorism has affected Myanmar, and created a verbal debate on who is a terrorist. The meaning of “terrorism” varies according to political persuasion. Thus, to the Burmese government, all dissidents are “terrorists”, and the opposition in that country and abroad calls the government “terrorists”. The United States has designated the United Wa State Army as a terrorist group,19 and a joint statement of co-operation against terrorism was issued on the occasion of the visit to Yangon of the Vietnamese President, Tran Duc Luong, on 5–8 May 2002. Shortly thereafter, the annual ASEAN Senior Officials Meeting on Transnational Crime took place in Kuala Lumpur, on 15–17 May 2002. The Burmese indicated that there was no evidence that drug money was used to finance international terrorist groups. This meeting was followed in the same city on 21 May by the ASEAN Special Ministerial Meeting on Terrorism, when Myanmar pointed out that it was not necessary at that time for it to join in the trilateral pact on anti-terrorism signed by Malaysia, Indonesia, and the Philippines.20

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Myanmar, always suspicious of U.S. intentions towards that country and probably fearing U.S. intervention both for historical and immediate reasons (“If you are not for us, you are against us”), but also interested in improving U.S. relations, was quick to respond in a positive manner to U.S. interests in anti-terrorism. The government is said to have supplied the United States with any intelligence information that the Myanmar authorities might have had, quietly allowed U.S. military overflights to the Middle East, and have taken steps to protect physically from terrorist attack the very vulnerable U.S. Embassy building in downtown Yangon. The Burmese Government spokesman indicated: We then subsequently learned that some of these individuals [Muslim rebels in the Arakan] were actually trained by the Taliban in Afghanistan, as well as in terrorist training camps in the Middle East. The Myanmar government, practicing zero-tolerance policy in such matters, vigorously confronted the activities of this group threatening the national as well as regional security…While the government of Myanmar and the U.S. have had differences in the years past, we are pragmatically in full agreement that terrorists must be given no sanctuary.21

A videotape acquired by the CNN from al-Qaeda in Afghanistan purports to show Burmese being trained by that group inside Myanmar.22 Any involvement with al-Qaeda was denied by the Arakan Rohingya National Organization,23 and by the Muslim Liberation Organization of Burma.24 However, some Muslims feel that their co-religionists in Myanmar have been oppressed. According to the August 1996 edict issued by al-Qaeda: “Massacres in Tajikstan, Burma, Kashmir, Assam, the Philippines, Fatani, Ogaden, Somalia, Eritrea, Chechnya, and Bosnia-Herzegovina have taken place”,25 and Osama Bin Laden is said to have boasted of having agents in a variety of countries, including Myanmar.26 Myanmar’s motivations for co-operation were probably fourfold: the generalized suspicions of the Burman military authorities toward the Muslims in the country, the fear of U.S. intervention should it be demonstrated that there were al-Qaeda cells in the country, a useful and internationally acceptable rationale for cracking down on Muslim groups that have been in insurrection, and a general attempt to improve relations with the United States. On 1 August 2002, Myanmar signed the U.S.–ASEAN Joint Declaration for Co-operation to Combat International Terrorism at its meeting in Brunei that the U.S. Secretary of State attended. More fundamentally, the Burman–Muslim relationship has been uneasy since the colonial period. Although official Burmese statistics indicate that about 4 per cent of the population are Muslims, Muslim sources say that the figure may be as high as 10 per cent. Most importantly, there has been continuous trouble in Rakhine State (Arakan) with the large Muslim population there. The area on the Myanmar side of the border with Bangladesh (formerly East Pakistan) is essentially Muslim territory. There has been since Burmese

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independence a Rohingya independence insurrection in that area, supported first by East Pakistan and funded with Middle Eastern monies. Suspicion of Muslims has been traditionally important and exacerbated by these separatist movements. Harassment and attacks by the Burma military in the late 1970s, ostensibly checking on citizenship and related matters, led to an exodus of some 200,000 Muslim refugees from Burma into Bangladesh; they were only repatriated after a considerable time by the United Nations. A similar problem arose in the early 1990s, resulting in another movement of about 200,000 Muslims into Bangladesh, where some 20,000 still remain after the others were repatriated under U.N. auspices. There were also anti-Muslim riots in Sittwe (Akyab).27 Problems and Prospects In spite of the euphoria internationally about the positive prospects in Myanmar as a result of Aung San Suu Kyi’s release, little of enduring progress has occurred. The essential elements of reconciliation have yet to be announced, perhaps even agreed upon, after more than seven months since Suu Kyi’s release. As the Special Rapporteur of the United Nations Commission on Human Rights, Paulo Sergio Pinheiro, wrote: There can be no credible democratic transition in Myanmar without four fundamental conditions: the inclusion of all components of society in political dialogue in a spirit of participation, mutual respect, co-operation and equity; the release of all political prisoners; the lifting of the restrictions which continue to hamper the ability of political parties and groups having concluded ceasefires with the Government to meet, discuss, exchange and peacefully conduct their legitimate activities; and the explicit discussion of political democratization that cannot take place without free elections.28

Some modest minority progress may have been made, if only indirectly. The military had regarded the NLD-sponsored constitutional commission (the Committee Representing the People’s Parliament — CCRP), composed of elected NLD legislators in 1990, as illegal and had demanded that it be disbanded. However, it continues to exist and has been augmented with new members designed to include some minority members. There has been no government protest. Moreover, in Laiza, Kachin State, in October, the formation of a Kachin National Consultative Assembly was announced that pledged support “to the emergence of a strong Union based on justice and union solidarity”. In April, a Karen Development Committee was formed. Both these disparate events that have been allowed by the military may mean a greater interest by the SPDC in addressing some minority issues. Excluded in the past dialogue between Daw Suu Kyi and the SPDC, the minority question remains the most intractable problem facing the country and any administration. Although international attention focuses on the political process as the immediate and

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overwhelming issue, it is Burman-minority relationships that will be the single most important longer-range factor in building a viable state under any new administration. The SPDC seems to wish to prolong negotiations with the NLD, and the former have explicitly indicated that they are not prepared to countenance a “parallel government” by recognizing the validity of NLD claims.29 The stalemate, thus, continues for the present, albeit with greater civility than before. Even this should be regarded as progress. Should some form of reconciliation take place, it can be expected that there would be a significant increase in foreign assistance. On a per capita basis in 1997, Myanmar received US$1.00 in foreign assistance, while Vietnam received US$14.70, Cambodia US$41.70, and Laos US$82.40.30 With the loss of human capital through migration and through the fall of standards in the educational system, and the systematic purge of expert civil servants, there are questions whether the state at any level is capable of planning, co-ordinating, or even effectively absorbing larger flows of assistance from either official or private sources to private organizations within the country. The regulations regarding the operation of international NGOs, which are likely to be the conduit for much humanitarian assistance, are opaque, arbitrar y, individual, and haphazard, effectively reducing the efficiency of any magnitude of aid. This is an issue that both the international community and the Myanmar Government should address even before reconciliation becomes a reality. There is little question that over time a new pattern of governance will develop in which the military will play a significant role in excess of that condoned in the industrialized world. When it does, this will not mean that the traditional concepts of power and authority will change on the part of any of the contending forces — the SPDC, the NLD, and the minorities. Power will still be personalized, factionalism likely, institutions less developed, orthodoxy encouraged, and hierarchy evident. Thus, the prospects are murky. However, if significant changes are not forthcoming soon, then the industrialized world may well begin to strengthen its efforts to isolate the regime, with dire consequences for the diverse peoples of Myanmar, whose well-being should be the world’s first priority.

NOTES 1. The name of the country was changed from Burma to Myanmar in 1989, but this was never accepted by the opposition. The United Nations uses “Myanmar”, while the United States uses “Burma”. Without political implications, Myanmar is used here for the state, but Burmese is used as an adjective, and Burman for the major ethnic-linguistic group, although the government has mandated other terms. Rangoon has been changed to Yangon, along with many other place names. 2. Major-General Kyaw Win, deputy chief of military intelligence and a rising star in the administration, was quoted as saying, “This is not a matter of house arrest, we are not arresting them or taking any action against them. It is a security measure for their own safety”. Security, however, from whom?

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3. Statement of the government’s spokesman, 6 May 2002. 4. The government claims that some US$7.398 billion in 369 projects had been approved by the end of 2001, but perhaps only one-third have been implemented. Only US$57.43 million was approved in 2001 for thirteen projects, a decline of 69.15 per cent from 2000. 5. U.S. Department of State, “Conditions in Burma and U.S. Policy Toward Burma for the Period 28 March 2001–27 September 2001”, 11 February 2002. 6. U.S. Department of State unclassified cable #113799, 12 June 2002. 7. U.S. Department of State transmission #12958 (unclassified), “World Textile Trade Without Quotas”. The report indicates that 98 per cent of the factories are privately owned, mostly by Taiwanese, Chinese, and Koreans, and some 1.3 million people in workers’ families depend on the earnings from them. 8. Reuters.com. 9 March 2002. The three grandsons of General Ne Win are Aye Ne Win, Kyaw Ne Win, and Zwe Ne Win. 9. In October, the United Nations held a poster exhibit in Yangon. In six days more than 35,000 people attended. Most significantly, the picture of the poster in the Burmese media was that of U Thant, former UN Secretary-General and Burma’s most illustrious son. As a close confidant of U Nu, he was anathema to Ne Win, who tried to have Thant’s body unceremoniously buried in 1974, causing student riots and numerous deaths. His grave was not kept up. This further indicates the fall of Ne Win’s influence. 10. At an unofficial minority meeting in Copenhagen in September 2002, some minority groups supported a resolution calling for a “federal” state with eight components: one each for the minority areas that now have such titular designations, and one for the Burman population. That some two-thirds of the population who are Burman would accept equal status with minorities, some of whom have minuscule populations in comparison to the majority Burmans, seem highly unlikely and unrealistic even as a bargaining tool, and undermines the credibility of real minority concerns about their rights. 11. See, for example, Kyaw Yin Hlaing, “The Politics of Government-Business Relations in Myanmar”, in the Asian Journal of Political Science 10, no. 1 (June 2002). 12. On 5 October 2002, the National Council of the Union of Burma (NCUB) and the Democratic Alliance of Burma (DUB), composed of many Burman and ethnic minority groups, issued a statement saying “We strongly believe that international aid is used by the regime to create legitimacy where there is none… Therefore, we call on the international community to withhold aid, especially through Rangoon, until there is a transitional arrangement for nation-building process as a result of meaningful tripartite dialogue”. 13. “The Burmese Military Regime’s Use of Sexual Violence in the Ongoing War in the Shan State”. The Shan Human Rights Foundation and the Shan Women’s Action Network, May 2002. In the 1996–2001 period, they charge that there were 173 incidents involving 625 girls and women. 14. UNDCP, Opium Survey 2002 (Yangon, August 2002). This contains detailed data on the Shan State as a whole, and particularly on the Wa region. It is significant that in that area, in addition to teaching the Wa language, primary schools taught far more Chinese than they did Burmese; indeed, although the data are unclear, more Chinese may be taught than Wa. This survey is the first detailed published study of narcotics in the Shan State. 15. Department of State, Bureau of International Narcotics and Law Enforcement Affairs, International Narcotics Control Strategy Report, Thailand Country Report (March 2001). Some sources maintain that the Thai grossly underestimate both production and imports. 16. Bangkok Post, 16 October 2002. 17. General Chavalit, who was the first high-level visitor to the SLORC in December 1988 as Chief of Staff, was Minister of Defense and Deputy Prime Minister in

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18. 19. 20. 21.

22.

23. 24. 25. 26. 27.

28. 29. 30.

David I. Steinberg 2002, and Prime Minister Thaksin is said to have business investments in Myanmar). Personal interview, Bangkok, June 2002. Straits Times (Singapore), 19 March 2002. Ibid., 21 May 2002. Agence France Presse, 8 August 2002. Quoting Myanmar Information Committee Information Sheet C-2311 (I/L) of 7 August 2002. The Indian press has been concerned about an international Muslim group called Tabliq, supposedly supported by the Pakistanis, and operating in Myanmar. See Boston Herald, 26 December 2001. This is disputed by Bertil Lintner (Asia Pacific Media Services Limited, 1 October 2002), who asserts that the camps were inside Bangladesh and run by the Rohingya Solidarity Organization (RSO). This group’s activities in Chittagong, Bangladesh, have been monitored by the Burmese authorities, who noted that in May 1994 Rohingya rebels received training, funds, and rewards from supporters from a variety of Muslim states, and that same month eight RSO members were sent to Libya for training. Associated Press, 26 August 2002. BBC, 10 August 2002. Quoted in Rohan Gunaratna, Inside Al Qaeda. Global Network of Terror (New York: Columbia University Press, May 2002), p. 89. BBC Worldwide Monitoring, 10 August 2002, from the Irrawaddy web site. For a study of the Muslims in Burma/Myanmar, see Thurein, “Muslims of Burma: Their Past, Present and Future” (Paper presented at the International Conference on Burma–Myanmar Research and Its future: Implications for Scholars and Policymakers), Gothenburg, Sweden, 21–25 September 2002. General Assembly, U.N. Situation of Human Rights in Myanmar, 31 July 2002. Personal interview, Yangon. June 2002. Asian Development Bank, Country Economic Report: Myanmar, Volume 1, Main Report (December 2001), p. 67.

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Southeast Asian Affairs 2003, pp. 189–210

MYANMAR AND CHINA A Special Relationship?

Tin Maung Maung Than

Introduction: Myanmar and Its Foreign Policy The State Law and Order Restoration Council (SLORC), which assumed power after a military coup on 18 September 1988 in response to a widespread breakdown of government authority, changed the country’s name from Burma to the Union of Myanmar on 18 June 1989. SLORC was reconstituted as the State Peace and Development Council (SPDC) in November 1997 and the latter currently rules Myanmar by decree. Myanmar is the second largest country (after Indonesia) among the ten states of the Association of Southeast Asian Nations (ASEAN) to which it was admitted in July 1997. Situated within continental Southeast Asia, Myanmar has a 1,385 miles-long coastline and shares land borders with five neighbouring states as depicted in Table 1. TABLE 1 Myanmar’s Borders China (north and northeast) India (north-west) Bangladesh (west) Thailand (east and southeast) Laos (east)

1,384 903 169 1,304 146

miles miles miles miles miles

SOURCE: www.myanmar.com/Union/history.html.

With a population of around 50 million at the turn of the century, the country is situated at the interface of South and Southeast Asia. Wedged between the two most populous states in the world and with over 2 billion people in the immediate neighbourhood, Myanmar has always been conscious of the geographic and demographic realties in formulating its foreign policy. The fact that the country is inhabited by some 135 (officially recognized) indigenous nationalities with many of these groups straddling the porous borders also complicates the policy calculus of Myanmar’s foreign relations that has to take TIN MAUNG MAUNG THAN is Senior Fellow at the Institute of Southeast Asian Studies, Singapore. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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into consideration the dynamics of the international system and domestic imperatives of economic, political, and security concerns. The cornerstone of Myanmar’s foreign policy during the first fourteen years of independence under the parliamentary regime had been described as “neutralism”. With the advent of military rule, after the coup of March 1962, many observers saw shades of “isolationism” in its “non-aligned” policy stance. However, according to one senior Myanmar diplomat, “no single term” such as “’neutrality”, “neutralism”, “non-alignment”, “isolationism”, or “independence” could “fully express” Myanmar’s “basic foreign policy” up to the late 1980s.1 On the other hand, Myanmar’s foreign policy has been summarized by its current practitioners as “independent” and “non-aligned” (in the Cold War context) up to 1971 and as “independent” and “active” thereafter. As such, “Myanmar will not align with any bloc on international issues except to consistently stand on the side that is right” while it “actively participates in activities for world peace; opposes war, imperialism and colonialism; and maintains friendly relations with all countries”.2 Myanmar–China Relations: A Historical Perspective Myanmar historians regarded the visit, in 802 A.D., of the Pyu delegation to Chang-an the capital of the Tang dynasty as the first confirmed diplomatic contact with China. Thereafter, there were more official contacts in what was deemed to be a cordial relationship between two sovereign states ruled by independent monarchs. In the thirteenth century a series of border skirmishes led to a Mongol invasion of Myanmar in 1283 resulting in a fifteen-year occupation of Myanmar territory after a truce was concluded in 1287. Another invasion in the fourteenth century was also resolved peacefully. In the late seventeenth century hostilities between the Ming emperor and the Manchus spilled over into Myanmar territory for a short while. The last round of conflict occurred between 1765 and 1769 when forces of the Konbaung dynasty repulsed four Chinese incursions resulting in a treaty of peace and friendship that was signed in December 1769. Thereafter, regular exchanges of letters and visits continued on an equal footing until 1874, some eleven years before the Myanmar kingdom lost its sovereignty to the British colonialists.3 Small-scale cross-border trading with Yunnan probably dated back several centuries but substantial and regular commercial links between Myanmar and China were established only in the eighteenth century and were sustained throughout the colonial period under British rule. After Myanmar regained its independence in 1948 it welcomed the establishment of the People’s Republic of China (PRC; hereafter China) in 1949. From the Myanmar perspective, it seemed that China had always regarded Myanmar as “essential” to its security and the latter “stands high in the degree of importance China attaches to its peripheral areas”.4 For the last five decades SinoMyanmar relationship has been premised upon the five principles of peaceful co-existence, agreed upon by Myanmar, China, and India in 1954, which constitutes:

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Mutual respect for each other’s territorial integrity and sovereignty; Mutual non-aggression; Non-interference in each other’s internal affairs; Respect for mutual equality and to work for mutual benefit; and Peaceful co-existence.

Moreover, the bilateral relationship between Myanmar and China was greatly enhanced by personal diplomacy exercised by leaders of both countries. This practice was launched by Zhou Enlai’s visit to Myanmar in June 1954 and U Nu’s return visit to China in November of the same year. However, despite the mutual acceptance of the ideals of peaceful coexistence (purported to be the foundation of Myanmar’s foreign policy) and personal friendship between leaders of both countries, Sino-Myanmar relations have undergone a series of ups and downs since June 1950 when diplomatic relations were formally established between the two states. Towards a Paukphaw Relationship (1948–67) Besieged by ethnic and communist insurgencies and agitation by leftist parties and communist sympathizers, the principal objective of the Union Government during the first few years of independence was regime survival that was seen as synonymous with the integrity of the state itself. The national security problem was further compounded by the incursion of the defeated Chinese Nationalist (Koumintang or KMT) troops into the Shan State in December 1949 and their subsequent establishment of enclaves as base areas for CIA-backed forays into China5 as well as the eventual military involvement of China in the Korean War. Hence, Sino-Myanmar relationship was premised upon ensuring that there would be no excuses whatsoever for any adverse Chinese reaction. To this end Myanmar’s leaders led by premier U Nu repeatedly emphasized Myanmar’s strict neutrality in its policy towards the United States and Soviet Union while attempting to cultivate personal friendship with China’s leaders and lobbying hard to amicably resolve the border issue with China.6 Thus a cordial relationship known as paukphaw (Myanmar word for sibling or brotherly) relationship was established between the two countries in the mid-1950s on the strength of personal rapport between U Nu and Chinese premier Zhou Enlai. This friendly relationship was maintained by the caretaker government (1958–60) of armed forces chief General Ne Win and U Nu’s Pyidaungsu Party Government that returned to power in the elections of February 1960. The high water mark of the bilateral relationship during the parliamentary era was the “Agreement” on the “Question of the Boundary Between the Two Countries” as well as the treaty of “Friendship and Mutual Non-Aggression” which were signed on 28 January 1960. A soft loan equivalent to some 30 million pounds (tied to Chinese technical assistance projects) was also extended to Myanmar in January 1961 as a gesture of goodwill by the Chinese Government.

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The Revolutionary Council (RC) that came to power in March 1962 through a military coup continued to enjoy friendly relations with China for half a decade. Leaders of both countries paid several visits to each other and exchanges between the two countries “even increased in number and frequency until 1967”.7 Nevertheless, two problems that threatened to undermine the bilateral relationship had emerged during the 1950s, viz., the incursion of Chinese troops into the northern Shan State and Chinese support of the Burma Communist Party (BCP) rebels. The first problem manifested when it was found out in late July 1956 that more than a thousand Chinese troops had entered the Wa State from Yunnan and remained entrenched following two bloody clashes with Myanmar troops along the disputed border in November 1955 and April 1956. U Nu’s appeal to Chairman Mao during his visit to Beijing in October 1956 diffused the tense border situation and resulted in the withdrawal of the Chinese troops from Myanmar territory by the end of the year.8 Such an incident was not repeated as the border issue was settled within the next four years. The issue of China’s support of the aboveground and underground communists in general and the BCP in particular dogged bilateral relations for some four decades after the BCP chose armed struggle as a route to power in March 1948. The Chinese Communist Party (CCP) as well as the government embraced the BCP and provided moral, material, financial, organizational, and ideological support, albeit in a low profile manner, while aboveground communists were assisted through Chinese diplomatic channels and the extensive overseas Chinese network. Nonetheless, the Myanmar side kept their cool and did not make any provocative attempts to highlight the apparent breach of the five principles of peaceful coexistence. Instead the government utilized internal resources to employ social, psychological, and military means to tackle the problem with some success. The hitherto smooth and friendly bilateral relationship between Myanmar and China turned sour when Mao’s “Cultural Revolution” was exported to Myanmar’s overseas Chinese community in mid-1967. The authority-defying Red Guard tactics of the overseas Chinese led to the detention of hundreds of Chinese activists and violent riots in the capital city that did not even spare the Chinese embassy compound. These June riots resulted in losses of dozens of Chinese lives as well as property. Tensions escalated and huge demonstrations involving hundreds of thousands of indignant Chinese were orchestrated in Beijing, Shanghai, and Kunming. Subsequently, Myanmar recalled its ambassador and students from China while Chinese technicians working on technical assistance projects were expelled from Myanmar. China unleashed a vociferous media war against Myanmar and bilateral relations reached the lowest point of all time. China on the Dual Track (1968–78) As a consequence of the rupture brought about by the so-called “1967-Affair” China introduced the dual tack or “two-pronged” approach towards bilateral

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relations by endorsing party-to-party relations with the BCP in addition to state-to-state relations. Covert actions that substantially increased the BCP’s material, financial and human resources augmented China’s overt assistance. Moreover, the Chinese facilitated the establishment of the clandestine BCP radio station known as the Voice of the People of Burma (VPOB) on Yunnan soil in March 1971. The military and organizational strength of the BCP was greatly enhanced by China’s provision of heavy and light weapons, ammunition, equipment, intelligence, military advisors, and even “volunteers”. As a result, the BCP was able to establish a “liberated area” east of the Thanlwin (Salween) river and launch a number of intense (though unsuccessful) offensives against Myanmar towns and positions on the west side of the river. China also assisted in the development of infrastructure for the BCP enclaves. Meanwhile, the RC government led by General Ne Win, made many overtures to “normalize” relations with China. Following a concerted effort to convince China of Myanmar’s good faith, sincerity and amity, diplomatic relations were fully re-established in March 1971 with the return of the Chinese ambassador to Myanmar. The official visit of General Ne Win to Beijing in August 1971 at the invitation of premier Zhou Enlai formalized the normalization of state-to-state relations in spite of the continued Chinese backing of the BCP’s actions. On the other hand, the resumption, in October 1971, of projects under the 1961 soft loan agreement marked the economic aspect of normalization. Myanmar adjusted itself to accommodate China’s dual track policy while maintaining friendly state-to-state relations. The Burma Socialist Programme Party (BSPP) government (that replaced the RC with the establishment of the one party Socialist Republic of the Union of Burma in March 1974), also tried to enhance the ties between the two countries by engaging in personal diplomacy with visits by Myanmar’s president, prime minister, and many official delegations. President U Ne Win’s visit in November 1975 resulted in a communiqué in which China reaffirmed the principles of peaceful coexistence and promised to refrain from aggression.9 After Mao’s death the tempo of Chinese assistance to the BCP slackened and the visit of deputy premier Deng Xiaoping to Myanmar in January 1978 signalled the elevation of state-to-state relations to a higher level of importance in bilateral relations. The subsequent rise of the pragmatic Deng to the position of “paramount leader” paved the way for rapprochement. Rapprochement (1979–88) Signs of change in Chinese foreign policy towards Myanmar became more and more apparent after 1979.10 One indication of changing fortunes of the BCP was the relocation of its headquarters from Manshi (China) to Pang Hsang inside Myanmar territory in 1979. Official development assistance (ODA) from China resumed in late 1979 with the provision of US$64 million worth of technical assistance projects. In 1984 and 1987 ODA packages amounting to

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some US$15 million (equivalent) and 80 million yuan were offered respectively. Bilateral relations steadily improved during the second half of the 1980s until the upheaval of 1988 that ended the BSPP era in Myanmar. Despite exchanges of high-level visitors following President U Ne Win’s trip to China in October 1980, the phasing out of the dual track policy took several years. The BCP continued to receive weapons and equipment well into the 1980s. The VPOB operated with Chinese assistance from the BCP headquarters at Pang Hsang until April 1985, when in remarkable coincidence the Chinese cut off the electricity supply just before U Ne Win visited Beijing for the first time as the BSPP Chairman. This visit in May 1985 symbolized the acceptance of a party-to-party relationship between the BSPP and CCP. During this visit, CCP General Secretary Hu Yaobang clarified the party’s stand on its “relations with Communist parties of other countries” which was summarized by a senior Myanmar diplomat as: “China is not in a position to disavow” friendly Communist parties but “China is not actively involved with them and leaves it to individual Communist party to create its own path”.11 On Chinese insistence the BCP communications and liaison office in Beijing was closed down after 1985. The 1975 ten-year agreement on mutual co-operation between the BCP and CCP was also not renewed. After 1985, the CCP, for all practical purposes, appeared to have withdrawn its active support of the BCP. Closest Ever (1989–) Bilateral relations between Myanmar and China improved rapidly within a year after SLORC was established in the military coup of 18 September 1988. SLORC came to power after a nation-wide upheaval of violent protest against the BSPP government in the preceding two months. There was no evidence that China was involved or even aware of the BCP’s alleged master plan to employ its underground (UG) operatives to take advantage of the 1988 upheaval in its bid for state power through proxies recruited from the nebulous democracy movement that spontaneously emerged from the rather chaotic and confusing milieu during the last two quarters of 1988.12 The subsequent unravelling of the BCP command structure and the rapid disintegration of the organization that was precipitated by the armed revolt of the Kokang faction in March 1989 removed the most enduring obstacle to Myanmar–China relations. By mid-1989 the BCP rank and file (mainly ethnic nationalities) had split into four groups that became legal organizations after securing “cease fires” with the government. The ageing (mainly Bamar) leaders were allowed to settle in Yunnan and elsewhere with the proviso that barred them from engaging in any political activity. On the other hand, Western states (United States, Canada, Britain, Nordic states, Australia, and members of the European Union) and Japan (Myanmar’s close friend since the 1960s and the most important donor country) withheld ODA and imposed sanctions and weapon embargoes on account of the military’s use of force in crushing protest and dissent during the coup and the following weeks that led to an exodus of students and activists into the rebel-held areas

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in Myanmar’s western and eastern borders. Western pressure also kept multilateral lending and aid agencies from catering to Myanmar’s developmental needs. Only Thailand (under Chart Thai Party Government) and China came to Myanmar’s aid during the initial period of Western ostracism and condemnation that remained unabated into the turn of the century. The visit to China in October 1989 of a delegation led by (then) SLORC’s number two leader and chief of army Lt. General Than Shwe was, in all likelihood, a watershed for Myanmar–China co-operation under the junta that had earlier discarded the socialist system and professed to pursue an “open door” economic policy in contrast to the command economy of the BSPP era. Thereafter, bilateral co-operation expanded considerably in many dimensions (see below) as China became Myanmar’s staunchest supporter in many ways. It can be said that China and Myanmar have been enjoying the closest relationship of all time for the last dozen years. International Relations and Diplomacy In the United Nations General Assembly and other international fora such as the International Labour Organization (ILO) congresses, Western attempts to condemn and impose punitive measures on Myanmar on issues of democracy, human rights, and forced labour were reputedly attenuated by China’s refusal to accept harsh/sharp language and concrete measures. These actions could be attributed not only to the close relationship between the two states but also to a convergence of interests between leaders of the two countries in opposing “Western values” that threatened interference in the “internal affairs” of the respective states. As such, Chinese leaders have repeatedly supported Myanmar’s contextual and particularistic interpretation of the aforementioned issues and have argued against the application of universal norms to “unique” situations like that of Myanmar. China and Myanmar also share the view that economic and cultural rights are as important as political rights, and communal rights should override individual rights. In fact, according to the joint communiqué issued on the occasion of Premier Li Peng’s visit to Myanmar (from 26–28 December 1994) both “sides believed that the countries of the world should have the right to freely choose their own social system, and road of development according to their traditions, culture, historical background and popular aspirations”.13 On its part, Myanmar stood by China on the Taiwan issue, the bombing of the Chinese embassy in Belgrade and the spy plan incident with the United States.14 Myanmar officials have consistently expressed their appreciation for China’s help and constantly rebutted criticisms on the nature of the relationship while denying the existence of Chinese “influence” on Myanmar’s actions. Influential security analysts in Myanmar seemingly subscribe to the view that the West regarded Myanmar as “the weak link in the regional China containment policy” being “advocated by the United States”. It follows that the West’s harping on democracy and human rights issues in Myanmar may be seen as attempts to incorporate Myanmar into the chain of encirclement aimed at containing China.15

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High-level exchanges of leaders and officials between the two states have been maintained since Than Shwe’s China visit in 1989. Notably, from China’s side the list included: State Councilor cum Secretary General Luo Gan (January 1991); State Councilor and Foreign Minister Qian Qichen (February 1993); Premier Li Peng (December 1994); Chairman Li Ruihuan (March 1997); Vice-President Hu Jintao (July 2000); and President Jiang Zemin (December 2001). From Myanmar’s side the dignitaries included: the late SLORC Chairman Senior General Saw Maung (August 1991); Secretary-1 of the junta Lt. General (now general) Khin Nyunt (September 1994 and June 1999); the late Secretary-2 Lt. General Tin Oo (November 1994); current SPDC Chairman Senior General Than Shwe (January 1996 and January 2003); Vice-Chairman of SPDC General (now vice-senior general) Maung Aye (October 1996 and June 2000); and the deposed Secretary-3 Lt. General Win Myint (October 2000). President’s Jiang’s state visit from 12 to 15 December 2001 with a large entourage of 135 members was covered extensively and prominently in Myanmar media. State-owned newspapers and journals as well as private publications carried reports and upbeat op-ed pieces during and after the visit. More than 200 Chinese nationals were released from prison as a goodwill gesture ahead of President Jiang’s visit. This visit apparently reciprocated Senior General Than Shwe’s China visit (with a contingent of fifty-two members) in January 1996 that resulted in agreements on economic and technical co-operation, cultural cooperation, and provision of subsidized credit to Myanmar. In his talks with his Myanmar counterpart President Jiang stressed the importance of “goodneighbourly friendship” in “China’s foreign policy” and gave assurance that “this … will not change”. He reiterated China’s conviction that “every country is entitled to choosing a development path suited to its conditions”.16 Seven agreements were signed by relevant authorities during President Jiang’s visit encompassing a variety of issues related to: border area; economic and technical co-operation; promotion and protection of investments; phyto-sanitary cooperation; animal health quarantine; fisheries; and onshore petroleum recovery. A diplomatic consultation system at the vice-ministerial level was established in 1992. Consulate-general offices that were closed down in the aftermath of the spat in 1967 were restored with Myanmar’s in Kunming in September 1993 and China’s in Mandalay in August 1994. The Agreement on Mutual Exemption of Visa for Diplomatic and Service Passport Holders was signed in January 1998. Military and Security Co-operation Myanmar’s practice of observing strict neutrality during the Cold War foreclosed the option of obtaining military aid from the superpowers and their allies. Hence up to the advent of SLORC, Myanmar relied on its own meagre resources to procure weapons and equipment, mainly from the West. Myanmar armed forces had to make do with armaments and equipment based on the technologies of the 1950s and the 1960s. In the 1990s, though the

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foreign exchange shortage continued, it was somewhat eased by the open-door economic policy of the military government. On top of that, China was willing to supply relatively modern armaments, ostensibly on favourable terms and the military rulers probably seized the opportunity to redress the huge shortcoming in conventional war-fighting capacity. After the military coup of 1988, the military government vigorously sought to acquire not only small arms and ammunition but also major armaments from abroad despite a Western arms embargo. The most significant move was the 1990 deal with China involving weapons and military equipment worth an estimated value of US$1.2 billion. Another agreement with the PRC to supply additional weapons and equipment worth US$400 million was reported in 1994.17 Taken at face value, such deals struck between 1988 and 1994, seem to have considerably expanded the capability of Myanmar’s armed forces. The arms and equipment procured after 1988 from foreign sources can be classified in three ways. The first involved the acquisition of similar or improved versions of existing equipment, either to replace obsolete ones or to supplement the existing stock. This type of procurement comprising ammunition, light or crew-served weapons, and transport equipment was essentially aimed at building up the military’s war stocks. China supplied the bulk of the hardware in this category. The second category comprises armaments that represent a substantial upgrading in terms of force multiplication and enhanced capability. It comprises relatively more modern versions of armoured personnel carriers, heavy tanks, artillery, anti-aircraft weaponry, air defence radars, naval vessels, light combat aircraft (LCA), helicopters, and transport aircraft. Their procurement, in contrast to those of the first category, was not a short-term Counter-Insurgency (COIN)-oriented measure but together with those in the third category, constituted an attempt to equip the armed forces for conventional war fighting. As such, those weapons and equipment ostensibly represent a vast improvement over the pre-1988 inventory in terms of technical specifications and firepower. China was again the major supplier of this class of weapons and equipment (except for the helicopters that came from Poland and Russia and the LCA from Yugoslavia). The third category includes new classes of weapons hitherto absent in Myanmar’s inventory, comprising multiple rocket launchers (MRL), surfaceto-air missiles (SAM), modern missile boats, supersonic fighters, advanced jet trainers, air-to-air missiles (AAM), four-engine transports, electronic warfare (EW) and signals intelligence (SIGINT) equipment, and night vision equipment. Again, China provided almost all the items belonging to this category. In addition to selling all this hardware, the Chinese military has reportedly been conducting the training of Myanmar personnel both in China and Myanmar while, in all likelihood, providing facilities for production of mines, small arms, and ammunition. It is believed that China has provided assistance in constructing military infrastructure and naval facilities but persistent claims

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that Chinese military personnel are involved in SIGINT activities or involved in operational tasks have never been substantiated.18 Thus, Myanmar’s modernization drive to cater for operations that require higher capabilities than the traditional COIN warfare was made possible by significant imports from China. Thus Myanmar, with Chinese help, has managed to make up for lost time in enhancing its military capability in line with the new orientation towards establishing a credible defence of the state against potential external aggression. According to the Chinese foreign ministry website, “[s]table military ties are maintained between the armed forces of both countries” and military leaders of both sides have kept a momentum of exchange of visits.19 Luminaries included: Deputy Chief of General Staff He Qizong (November 1991); Defence Minister Chi Haotan (July 1995); Vice-Chairman of the central Military Commission Zhang Wannian (April 1996); and Chief of General Staff Headquarters General Fu Quangyou (April 2001). Air force deputy commander as well as regional commanders of Chengdu and Lanzhou, and Yunnan have also been to Yangon. Representing Myanmar’s armed forces in visits to China, besides Commander-in-Chief Senior General Than Shwe, were Deputy Commander-in-Chief General Maung Aye, Intelligence Chief Lt. General Khin Nyunt, Army Chief of Staff Lt. General Tin Oo, Adjutant General Lt. General Win Myint, chiefs of air force and navy as well as directors of armour and artillery, signals, medical corps and senior staff officers. Under the military regime bilateral co-operation in border security and non-traditional security issues such as narcotics trafficking have also been developed. In fact Chinese Minister of Public Security Jia Chunwang visited Yangon in January 2001 on a five-day visit to strengthen co-operation between his ministry and Myanmar’s home ministry and anti-narcotic agencies. Trade and Economic Co-operation Myanmar’s trade with China comprises “conventional” trading through designated ports and airports which is subject to normal trade rules as well as border trading under a more relaxed set of regulations. In fact, Myanmar– China border trade, which previously was illegal, was regularized in August 1988 by the BSPP regime but immediately became moribund due to the civil disturbances that erupted. Only in November 1988 did it become functional on the authorization of the military government. Thereafter, “China became a major supplier of Myanmar’s consumer products” mainly through border trade. The liberalization of the economy with the junta’s adoption of the “open door policy” was also a boon to both categories of external trade. However, statistics on bilateral trade are not reliable due to continued smuggling and under-reporting and official figures “may represent as little as 20 per cent of its real value”.20 Nevertheless, as can be seen in Table 2, there was a marked increase in trade volume in the last decade when compared to the pre-1988 era.

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© 2003 Institute of Southeast Asian Studies, Singapore

177 165 –12

1985/86

946 339 –607

1992/93 1,261 210 –1,051

1993/94 1,019 277 –742

1994/95 –1,434 195 –1,239

1995/96 1,116 336 –780

1996/97 1,524 837 –687

1997/98

1,744 571 –1,173

1998/99

NOTE: Fiscal year runs from April to March. SOURCE: Selected Monthly Economic Indicators (Yangon: Central Statistical Organization, various issues).

Imports Exports Balance

Fiscal year

TABLE 2 Myanmar’s Trade with China (million kyats)

1,568 847 –721

1999/00

1,855 1,143 –712

2000/01

2,068 1,545 –523

2001/02

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When Table 3 and Table 4 are compared (using an average official exchange rate of 6 kyats per dollar) it is found that Myanmar official data significantly underestimated the import volume throughout. On the other hand, Myanmar figures on export volume for the period after 1996/97 substantially exceeded those given by the International Monetary Fund (IMF) and Chinese sources. Myanmar’s official data also indicate that the chronic trade balance in China’s favour began barely a year after the border trade took off with the collapse of the BCP that had previously controlled major gateways to Yunnan. Government statistics revealed that the export surge in 1988/89 (to 943 million kyat from the previous fiscal year’s 153 million) that occurred immediately after trade liberalization collapsed in 1990/91 (down to 396 million kyat) and did not recover until 1997/98. This is probably due to restrictions of agriculture and timber exports that were imposed in the early 1990s and supply constraints that applied across the board. As a result China, which became the top destination for Myanmar’s exports in fiscal year 1988/89, dropped to the fifth position in 1993/94. After the recovery of export volume, exports to China ranked second after India in 1997/98 and 1999/2000 while achieving the fourth position after India, Singapore, and Thailand in 1998/99. On the other hand, the demand-driven import momentum was maintained throughout the decade even after import controls were introduced in April 1998 to conserve foreign exchange. China’s proximity, relatively cheaper prices, availability of supplier credit and the Western sanctions on aid and investment probably account for the substantially higher share of Chinese products in Myanmar’s import volume after 1988 as evident in Table 5. The more worrying trend is the fact that the amount of the trade deficit with China as a percentage of the total trade deficit has escalated in the last two years, thereby reversing a downward trend that began in the early 1990s (Table 5). Apparently, Myanmar’s deficit with China was disproportionately large compared to total trade deficit with the whole world. Myanmar’s exports to Yunnan through border gates in the Shan (five as of 1996) and Kachin (two as of 1996) states consisted mainly of timber, raw materials, agriculture products, minerals and livestock, while imports comprised mainly machiner y, industrial inputs, and consumer goods.21 Though anecdotal evidence suggest that there had been substantial timber exports to Yunnan, official figures show that even overall timber exports were quite insignificant in both absolute value and share (of total timber trade) terms (Table 6). This could be due to the fact that though timber exports through border trade to China were banned since 1991 smuggling continued.22

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30 28 –2

1985/86

158 57 –101

1992/93 210 35 –175

1993/94 170 46 –124

1994/95 239 33 –206

1995/96 186 56 –130

1996/97 254 140 –114

1997/98

© 2003 Institute of Southeast Asian Studies, Singapore

315 (286)

96 (106)

–219 (–180)

Imports

Exports

Balance

–166 (–128)

119 (131)

285 (259)

1992

–207 (–160)

150 (165)

357 (325)

1993

–276 (–226)

130 (143)

406 (369)

1994

–544 (–468)

136 (150)

680 (618)

1995

–448 (–384)

125 (137)

573 (521)

1996

–560 (–497)

67 (73)

627 (570)

1997

–530 (–452)

56 (62)

586 (514)

1998

–355 (–305)

92 (102)

447 (407)

1999

261 141 –120

1999/00

–433 (–371)

113 (125)

546 (496)

2000

309 191 –118

2000/01

–425 (n.a.)

122 (n.a.)

547 (n.a.)

2001

345 258 –87

2001/02

NOTE: n.a.= not available; the data in parentheses are from China. SOURCE: Direction of Trade Statistics (Washington, D.C.: International Monetary Fund); and China Statistical Yearbook (Beijing: China Statistics Press).

1991

Calendar year

291 95 –196

1998/99

TABLE 4 Myanmar’s Trade with China; IMF and Chinese Sources (US$ million)

NOTE: Kyat converted to U.S. dollar equivalent at an average rate of 6 kyat per dollar. SOURCE: Table 2.

Imports Exports Balance

Fiscal year

TABLE 3 Myanmar’s Trade with China (US$ million equivalent)

Myanmar and China: A Special Relationship? 201

3.7 6.2 0.6

1985/86

17.6 9.4 34.6

1992/93 15.9 5 28.5

1993/94 12.2 5.1 25.4

1994/95 13.9 3.9 23.5

1995/96 9.5 6.1 12.4 10.6 13 8.7

© 2003 Institute of Southeast Asian Studies, Singapore

0.7

6.9

1992/93

1.4

17.9

1993/94

0.6

6.7

1994/95

0.1

1.4

1995/96

NOTE: Fiscal year runs from April to March; k = kyat. SOURCE: Statistical Yearbook (Yangon: Central Statistical Organization).

4.8

50.4

Value (million k)

Share (%)

1985/86

Fiscal year

0.3

2.6

1996/97

TABLE 6 Myanmar’s Timber Exports to China

10.3 8.5 11.6

0.4

3.1

9.6 9.5 9.9

1999/00

0.9

7.3

1998/99

1998/99

1997/98

1996/97 1997/98

NOTE: Fiscal year runs from April to March. SOURCE: Selected Monthly Economic Indicators (Yangon: Central Statistical Organization).

Imports Exports Trade deficit

Fiscal year

TABLE 5 Myanmar–China Trade (percentage share of total foreign trade)

3.6

33.1

1999/00

12.3 9 30.5

2.8

22.8

2000/01

11.3 9 41.9

2000/01 2001/02

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The border trade with Yunnan (China’s border province three-fifth the size of Myanmar, with a population of over 42 million and a regional per capita gross domestic product of US$530 in 1999) forms the bulk of Myanmar–China trade with some estimates attributing up to 40 per cent of the total trade (in 1994) to it. Border trade volume rapidly peaked at over US$220 million in 1990 from some US$16 million in 1984. In recent years it has fluctuated depending upon the changing regulatory environment and effective demand in both countries (see Table 7) but China has maintained the highest share among the four border-trading countries (others are Bangladesh, India, and Thailand). It is believed that much of the border trade involves smuggling and remains outside official statistics.23

TABLE 7 Myanmar–China Border Trade (volume) 1994/95

1995/96

1996/97

1997/98

1998/99 (10 months)

Value (million kyats)

570

1,508

1,131

863

636

Share (%)

40.9

74.8

52.8

58.6

77.8

Fiscal Year

SOURCE: Living Color (Myanmar magazine), January 1999, p. 36.

Not only trade but also labour and services are involved in cross-border economic relations between Myanmar and Yunnan. In border towns like Muse and Lwaigyai workers from both sides commute to the other side to be employed on a daily or long-term basis in construction, mining, and service sectors. Yunnan has been supplying electricity to Myanmar’s border towns like Muse and recently agreed to sell electricity to the Kokang region as well.24 Apart from trade, China has been heavily involved in Myanmar’s industrial and infrastructure development. On 30 Januar y 1996, the Myanmar government established “The Leading Committee for Promoting Economic Cooperation between the Union of Myanmar and the People’s Republic of China” chaired by the Junta Secretary-1, General Khin Nyunt. With the moratorium on ODA imposed by Western states and Japan as well as Myanmar’s traditional multilateral benefactors such as the World Bank and then Asian Development Bank (ADB), China apparently stepped into the vacuum to meet Myanmar’s attempt to modernize its obsolete industries and rectify and expand its decaying infrastructure.25

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During Myanmar’s leader Senior General Than Shwe’s state visit to Beijing in Januar y 2003, China offered Myanmar a preferential loan amounting to US$200 million and a US$6 million grant for technological co-operation. For both strategic and economic reasons Myanmar’s military junta had since the early 1990s embarked upon an ambitious programme of building roads, bridges, dams, hydroelectric schemes, and import-substituting state-owned industries. Severe constraints on human and financial resources, especially technical expertise and scarce foreign exchange, had led Myanmar to rely heavily on Chinese expertise and ODA-linked imports of machinery and equipment.26 Thus China was involved in establishing state-owned enterprises such as sugar plant, textile factory, plywood plant, rice mill, coal-fired power plant, pulp and paper mill, mobile liquefied petroleum gas plants, agriculture equipment plant, and other light industrial factories. China also provided coastal liners, irrigation pumps, construction materials, an auto telephone exchange, and a satellite ground station. Construction of the Yangon-Thanlyin Bridge, Mandalay International Airport, a gymnasium, a theatre, and upgrading of roads near the Myanmar-Yunnan border were carried out with Chinese assistance. Myanmar’s private sector, facing technical and financial constraints, also turned to China as a cheaper alternative to other sources of machinery and equipment. Some of the ethnic cease-fire groups (officially seventeen altogether) that went into business in a big way in the second half of the 1990s also have ethnic, financial, and logistic links with Yunnan and China. It was reported that “[b]y the end of 2000, 759 trade agreements” amounting to some US$1.79 billion “had been signed” with Chinese companies. The “first 10 months of 2001” saw “another 87 projects worth 186 million dollars”.27 China’s investments in Myanmar are also difficult to assess as many of them have been local or indirect ventures that do not go through the rigorous procedures stipulated by the national-level Myanmar Investment Commission (MIC). According to the MIC figures only US$61.7 million worth of projects from China were approved up to mid-2001 out of a total approval of more than US$7 billion. Myanmar has been pushing for the rapid development of its nascent tourist industr y with limited success. In that context China, with its proximity and a huge and rapidly prospering population, is a potential source of tourism growth. In reality, though anecdotal evidence suggests that some 3,000 “day-trippers” a month visited Muse alone, the volume as well as share of Chinese tourists entering Yangon by air in the nine years leading to fiscal year 2000/01 had been insignificant as can be seen from Table 8.28 As such, the economic impact of Chinese tourism has so far been negligible.

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© 2003 Institute of Southeast Asian Studies, Singapore

92

0.3

Numbers

Share (%)

0.5

52

1992/93

1

255

1993/94

3.2

1,502

1994/95

1.4

1,139

1995/96

1.3

1,388

1996/97

1.9

2,212

1997/98

NOTE: Fiscal year runs from April to March; tourists from Hong Kong are excluded. SOURCE: Selected Monthly Economic Indicators (Yangon: Central Statistical Organization).

1985/86

Fiscal year

TABLE 8 Chinese Tourists Arrivals at Yangon Airport

2

2,384

1998/99

2.4

2,737

1999/00

2.4

2,962

2000/01

2.7

3,170

2001/02

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Socio-Cultural Aspects of Relationship The close bilateral relationship between Myanmar and China has led to an expanded movement of people between the two countries. Cross-border visits and migration appeared to have risen over the last dozen years of friendly relations. The consequences of this movement of people as well as the overall implications of relatively open borders has had far-reaching impact on the socio-cultural fabric of Myanmar that had relatively far less exposure to such influence before 1988. It has been pointed out that border towns exhibited much Chinese influence in architecture, lingua franca, fashion, music, leisure, entertainment, and currency usage. Chinese New Year celebration that had been a low-key family-centred affair for nearly three decades after the 1967 riots has been accorded public prominence in recent years and Chinese customs and rituals have been openly practised in social gatherings, weddings, and socio-culture celebrations. Chinese newsletters and serial publications have appeared in border towns and the government allowed the publication of two local Chinese newspapers in 1998. The more controversial issue is the implications of alleged massive Chinese migration following the opening up of Myanmar’s economy and its borders by the military junta in 1989. Though the last national census was way back in 1983, anecdotal evidence indicates that the population of border towns has literally exploded in the last decade. For example, it was estimated that though the entire population of the Shan State (bordering both China and Thailand) increased by some 16 per cent between 1983 and 1993 (just below the national average of 1.9 per cent annually), those of (part of) Hopang, Wa region (excluding Hopang), and Muse town had increased by 52, 39, and 164 percentage points respectively during the same period.29 Although internal migration due to the “pull factor” of these areas with high economic activities must have been a significant contributing factor, Chinese migration as a demographic factor is also highly plausible and cannot be ruled out.30 It has been suggested that “[t]here has been an influx of Chinese from southwest China who do not need visas for border crossing but manage to stay in the country and permeate urban areas”. As a result, “[m]uch of the economy has moved into Chinese hands with dire consequences for social unrest”. It was also pointed out that “Mandalay, the seat of Burman [Bamar] culture is said to have 200,000 recently [1990s] arrived Yunnanese Chinese out of a population of one million”. Moreover, the estimates of Chinese migrants into “Northern Burma” ranged from “several hundred thousands to over one million”.31 Again, the extent of unhappiness among the locals over the apparent “overbearing” presence of migrant Chinese in urban and rural Myanmar is unknown, but given the highly visible display of wealth and alien culture by migrant Chinese in places like Mandalay and in parts of Shan and Kachin states, there is no doubt that the migrant issue is a cause for concern on Myanmar’s side.

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China had also contributed to a highly symbolic affirmation of the junta’s sponsorship of Buddha Sasana in recent years by facilitating the visits of Buddha’s Tooth Relic from Beijing (China) in 1994 (20 April–4 July) and 1996/96 (6 December–5 March). The first visit in which the relic was conveyed to Mandalay with stopovers in four towns saw huge turnouts of devotees coming to pay obeisance to the sacred relic, come rain or shine. It was also a huge success as an illustration of the piety and religiosity of the ruling generals as well. The two replicas that were placed alongside the original relic on display were later enshrined in two pagodas that were completed in 1996 at Yangon and Mandalay in commemoration of that historic visit. The second arrival and display for 90 days of the Tooth Relic was again enthusiastically welcomed by the masses who flocked by tens of thousands every day to pay their respects. These two visits engendered much goodwill and amity within the polity towards China, the junta, and all the authorities concerned and the Yangon regime maximized its capital out of it. On the other hand, Taoism has regained popularity and some of its rituals and beliefs are apparently finding their way into Myanmar spiritual culture; especially among Sino-Myanmars and in business circles where luck and fortuitous circumstances are highly sought after in the quest for prosperity. Conclusion: Whither the Relationship? Historically, Myanmar has been, for all practical purposes, the younger sibling in the paukphaw relationship with China. Under the present military junta this “special” relationship has developed further into the closest ever in history driven by a convergence of interests under taxing circumstances in their relations with the West. Myanmar has gained substantially from this relationship both materially and diplomatically. Myanmar’s quest for modernizing its armed forces would not have been realized without China’s help. Myanmar’s economy, devoid of Western assistance and hobbled by sanctions, has become rather dependent upon China (and Yunnan in particular) and China’s moral and symbolic support has not only shielded the Myanmar regime from Western opprobrium and reinforced the military’s attempts to legitimize itself with the domestic polity, but also enhanced Myanmar’s diplomatic bargaining power in relations with regional states.32 Many observers of strategic affairs in the Asia-Pacific point out that there have been regional concerns over China’s potential strategic reach into the Bay of Bengal and Malacca Straits through its participation in building and maintaining Myanmar’s military and transport infrastructure; especially the alleged intelligence sharing and envisaged road, rail, and river network connecting Yunnan with northern and western Myanmar.33 Myanmar’s closeness to China is seen by some as deviating from its longstanding policy of non-alignment or as a manifestation of Beijing’s attempt to draw Myanmar “tightly into its sphere of influence” to “satisfy its own ‘great

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power’ ambitions”.34 Myanmar has been described as a “de facto Chinese client state”, “a virtual Chinese satellite”, and “a critical nexus in the ChinaIndian connection [regional rivalry]”.35 However, Myanmar authorities have consistently denied any Chinese military presence in Myanmar or establishing a strategic alliance in China’s favour. Instead there are signs that Myanmar is diversifying in weapon purchases and has not given top priority to the China–Myanmar infrastructure network project supposedly agreed upon as far back as 1997.36 In recent years, the junta has relaxed its harsh stand on human rights and democracy issues while actively engaging the world through the ASEAN grouping as well as the United Nations system. There is thus a possibility of rapprochement with the West once the domestic political impasse is overcome through the ongoing reconciliation talks with the opposition leader Daw Aung San Suu Kyi. Such an outcome would erode China’s leverage in the relationship. Moreover, given Myanmar’s emphasis on self-reliance, independent action, and ethnic pride underpinning its “strategic culture” it is highly unlikely that nationalistic Myanmar would allow itself to be drawn into China’s orbit to the extent that it may be regarded as a “satellite” or “client”.37 How the relationship would fare under China’s new generation leaders led by the newly elected Chinese Communist Party General Secretary Hu Jintao remains to be seen. NOTES 1. Daw Than Han, Common Vision: Burma’s Regional Outlook, Occasional Paper, Institute for the Study of Diplomacy, School of Foreign Service, Georgetown University (Washington, D.C., 1988), p. 19. 2. See, “Foreign Policy of the Union of Myanmar”, Ministry of Foreign Affairs Web page, . 3. See Maung Aung Myoe, “Myanmar’s Foreign Policy (1974–88)” (Master thesis, International University of Japan, 1993), pp. 15–17. 4. Daw Than Han, Common Vision, p. 62. 5. See, for example, Victor S. Kaufman, “Trouble in the Golden Triangle; The United States, Taiwan and the 93rd Nationalist Division”, China Quarterly No. 166 (June 2001): 440–56; and Robert H. Taylor, Foreign and Domestic Consequences of the KMT Intervention in Burma, Cornell University Southeast Asia Program Data Paper No. 93 (1973). 6. U Nu, U Nu: Saturday’s Son, translated by U Law Yone, edited by U Kyaw Win (Bombay: Bharatiya Vidya Bhavan, 1976), pp. 236–42, 246, 252–64. 7. Robert A. Holmes, “Burma’s Foreign Policy toward China since 1962”, Pacific Affairs 45, no. 2 (Summer 1972): 242. 8. U Nu, U Nu, pp. 253, 263–64. 9. Chi Shad Liang, Burma’s Foreign Relations: Neutralism in Theory and Practice (New York: Praeger, 1990), p. 92. 10. It was believed that Myanmar’s withdrawal from the Non-Aligned Movement at the Havana meeting in September 1979 for its pro-Soviet stance also contributed towards rapprochement. See, for example, Robert H. Taylor, “Burma’s Foreign Relations Since the Third Indochina Conflict”, in Southeast Asian Affairs 1983 (Singapore: Gower/Institute of Southeast Asian Studies, 1983), p. 106.

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11. Daw Than Han, Common Visions, p. 17. This was the closest that the CCP leadership came to publicly acknowledge the cessation of China’s dual track policy towards Myanmar. 12. For accounts of the communist plot, see Burma’s Communist Party’s Conspiracy to take over State Power (Yangon: News and Periodicals Enterprise, 1989). 13. “Joint Communiqué” posted on the Internet newsgroup , dated 28 December 1994. 14. For example, in response to Lee Teng Hui’s “recent statement” on cross-straits relations, Myanmar’s foreign ministry issued a press release on 17 July 1999 reiterating the country’s “full support to China’s efforts to safeguard its sovereignty, dignity, and territorial integrity” adding that “Myanmar consistently abides by the ‘One China Policy’ and recognized Taiwan as an inalienable part of the People’s Republic of China” (New Light of Myanmar [hereafter NLM], 17 July 1999). The foreign ministry statement issued on 11 May 1999 expressed shock and distress on learning about the “bombing” of the Chinese embassy in Belgrade by ”the NATO forces” and added that “Myanmar deeply deplores this grave incident which is tantamount to violation of the UN Charter and the basic norms of the international law…” (NLM, 12 May 1999). In the case of the spy plane incident, Myanmar’s state-owned newspapers prominently carried news and comments relating to China’s version of the incident. 15. Hla Min, Lt. Col., “Political Situation of Myanmar and Its Role in the Region”, 17th ed. (Yangon: n.p., 1999), p. 45. 16. “China Myanmar Friendship Highlighted in Yangon”, People’s Daily online 13 December 2001, posted on the Internet newsgroup , dated 13 December 2001. Sceptics may regard these statements as platitudes but they ser ve a useful purpose as a symbolic endorsement of the junta’s actions. 17. See, for example, Bertil Lintner’s report in Jane’s Defence Weekly, 3 December 1994, p. 1. 18. See, for example, Andrew Selth, Burma’s Defence Expenditure and Arms Industries, Working Paper No. 309, Strategic and Defence Studies Centre, Australian National University (Canberra: August 1997), p. 10; and idem, Landmines in Burma: The Military Dimension, Working Paper No. 352, Strategic and Defence Studies Centre, Australian National University (Canberra: November 2000), pp. 10–11. See, for example, “Burma; A Dragon at the Gate”, Asiaweek, 14 April 1993, p. 36; William Ashton, “Chinese Naval Base: Many Rumors, Few Facts”, Asia-Pacific Defence Reporter (June–July 1993), p. 25; and Bertil Lintner, “Burma; Enter the Dragon”, Far Eastern Economic Review, 22 December 1994, p. 23. These rumours are probably precipitated by hints dropped by “hawks” in the Indian military establishment. 19. See . 20. David I. Steinberg, Burma: The State of Myanmar (Washington, D.C.: Georgetown University Press, 2001), p. 226. 21. See Mya Than, The Golden Quadrangle of Mainland Southeast Asia A Myanmar Perspective, ISEAS Working Papers on Economics and Finance No. 5 (Singapore: Institute of Southeast Asian Studies, 1996), pp. 21–22. 22. See, for example, John Pomfret, “China’s Lumbering Economy Ravages Border Forests”, Washington Post, 26 March 2002, reproduced in Internet posting, BurmaNet News, dated 27 March 2001; and, more recently, Brook Larmer and Alexandra A. Seno, “A Reckless Harvest”, Newsweek, 27 January 2003, pp. 22, 24. In fact, Xinhua news agency, citing Chinese Customs records, reported that China imported nearly US$66 million worth of wood and wood products in the seven months from January to July 2002 (reproduced in BurmaNet News, 24 September 2002).

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23. See Maung Myint, The International Response to the Democracy Movement in Burma Since 1962 (Stockholm: Center for Pacific Asia Studies, 2000), pp. 121–22. See also Mya Than, Goldern Quadrangle, pp. 18–19, 27–29. 24. See Living Color (Myanmar magazine), November 2002, p. 19. 25. It was probably not due to pure coincidence that China signed a broad economic and trade co-operation agreement in May 1997 soon after the United States imposed sanctions on new investment in Myanmar. 26. In August 1998 China announced that it would supply equipment worth US$250 million for Myanmar’s largest hydroelectric power project. In September 2000 an agreement extending US$120 million credit by the Bank of China for the that same project was revealed . 27. “Myanmar’s Trade with China Rising Steadily: Report”, AFP, 14 January 2002, Internet posting, BurmaNet News, dated 14 January 2002. 28. Yangon airport is the only valid entry point for tourists except for chartered flights and cruises that are few and far between. Myanmar statistics did not disaggregate data on overland visitors with border passes. However, one could speculate that the Chinese would comprise a large portion of some 145,000 annual average that crossed into Myanmar between the fiscal years 1996/97 and 1999/ 2000 as well as the over 88,000 in 2000/2001. See, for example, various issues of Selected Monthly Economic Indicators (Yangon: Central Statistical Organization). 29. Doug J. Porter, “Wheeling and Dealing, HIV/AIDS and Development on the Shan State Borders”, unpublished research report, Canberra, Australian National University, October 1994. Table 7, p. 22. 30. In fact, 46 per cent (over 2,900) of the population of Lwaijai (a Kachin border town officially established in 1999) was found to be Chinese: Kyaw Yin Myint, “Lwaigyai, Tayoke Myanmar Neigyar Winbuak Myo” [Lwaigyai: Entry-point Town at the China Myanmar Border], Dhana magazine, January 2002, Table 1, p. 39. 31. Steinberg, Burma, pp. 227–28. 32. The successful use of “China card” in acquiring favourable treatment by Japan, India, and the ASEAN states have been the subject of speculation by Myanmar watchers. See, for example, Ang Cheng Guan, “Myanmar: Time for a Unified Approach”, Security Dialogue 32, no. 4 (2001): 467–80; and Mohan Malik, “Burma’s Role in Regional Security”, in Burma Myanmar: Strong Regime Weak State, edited by Morten B. Pedersen, Emily Rudland, and Ronald J. May (Adelaide: Crawford House, 2000), pp. 241–77. 33. See, for example, Rodney Tasker and Bertil Lintner, “Danger: Road Works Ahead”, Far Eastern Economic Review, 21 December 2000, pp. 26–27; Steinberg, Burma, pp. 229–30, 233–34. 34. Malik, “Burma’s Role in Regional Security”, p. 271. 35. Maung Myint, International Response, p. 127; Anthony Davis, “Burma Casts Wary Eye on China”, Jane’s Intelligence Review, 1 June 1999, posted on Internet BurmaNet News, 6 August 1999; and Steinberg, Burma, p. 226. 36. See, for example, Davis, “Burma Casts Wary Eye on China”; and idem, “China’s Shadow”, Asiaweek, 28 May 1999, pp. 30–34. In late 2001 Myanmar reportedly bought about a dozen MiG 29s from Russia instead of buying more Chinese jets. 37. For an elaboration of Myanmar’s strategic culture, see Tin Maung Maung Than, “Myanmar: Myanmarness and Realism in Historical Perspective”, in Strategic Cultures in the Asia-Pacific Region, edited by Ken Booth and Russell Trood (Basingstoke and London: Macmillan, 1999), pp. 165–81.

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THE PHILIPPINES

Southeast Asian Affairs 2003, pp. 213–27

THE WINDS OF CHANGE IN THE PHILIPPINES Whither the Strong Republic?

Mely Caballero-Anthony

The year 2002 saw the government of Gloria Macapagal-Arroyo facing an almost unending list of problems and controversies. She had been installed President in January 2001 after the tumultuous “People Power 2/Edsa II”, a popular uprising that overthrew the administration of former President Joseph Estrada. From a controversial and rocky start and weak political support, Arroyo seemed to have finally found her bearings after a year and half in office. She even managed to score a relatively high popular support rating in the middle of July 2002. However, her popularity began to ebb in the later part of 2002, culminating in her unexpected year-end announcement that she would not contest the 2004 presidential elections. The revised Philippine Constitution of 1987 had effectively set the limit of a Philippine President’s term to a single six-year one. Arroyo’s case was different however. She took over from Joseph Estrada after he was implicated in a series of corruption scandals that resulted in a controversial impeachment trial. The trial and the series of turbulent events that followed climaxed in the “People Power 2” uprising on 20 January 2001, ending the two years of Estrada’s presidency. Hence, Arroyo’s current four-year term was only to complete what would have been Estrada’s six-year term as President, making her technically eligible to run again as President for a full six-year term. As the incumbent President, Arroyo’s chances of getting re-elected — until the middle of 2002 — were actually quite strong. They were buoyed by her achievement of a modicum of political stability and her relatively successful management of the country’s economic challenges. Thus, President Arroyo’s announcement took the country by surprise. Apparently even her closest allies were left in the dark until she delivered her year-end speech on 30 December 2002, which coincided with the country’s celebration of National Heroes Day. The significance of the timing of the announcement was not lost on observers and political commentators. National Heroes Day is also a time when the Philippines commemorates the life of the national martyr, Dr Jose Rizal, whose own sacrifice led to the independence of

MELY CABALLERO-ANTHONY is Assistant Professor at the Institute of Defence and Strategic Studies (IDSS), Nanyang Technological University, Singapore. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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the Philippines from Spanish colonial rule in 1898. Her decision not to contest the 2004 presidential polls was therefore perceived as, in Arroyo’s own words, a necessary “sacrifice”. Arroyo declared that a sacrifice was needed to enable the country to move forward and to heal the deep divisions that have marred the administration’s efforts to embark on much needed structural reforms. The decision seemed to reflect her deep frustration in not being able to move ahead with her policy agenda. Yet, at the same time, it signalled her resolve to make the most of the remaining eighteen months of her administration. According to Arroyo, “relieved of the burden of politics”, her government could now focus squarely on the task of reviving an ailing economy by creating more jobs, encouraging business activity, and healing political divisions. President Arroyo’s decision to bow out of the 2004 presidential race has set the pace for a re-drawing of the country’s political landscape. An end to the bitter rivalry between the pro-Estrada and pro-Arroyo forces that had driven a deep wedge in the country’s politics will open the field for new political players to enter the contest for the country’s top leadership. However, at the end of 2002 the burning question was: Can Arroyo, in the remaining months of her administration, succeed in healing the divisions of the past and build a “strong republic”? The Goal of a Strong Republic After coming into office, President Gloria Arroyo had to struggle to cement her position. The foiled EDSA 3 revolt in May 2001, staged by the supporters of former President Joseph Estrada just a few months after she assumed office, starkly reminded Arroyo of the fragility of her political power base. The issue of the legitimacy of her regime was more than an irritant. Estrada supporters had been capitalizing on the fact that Arroyo’s ascension to power was unconstitutional, as she was never elected into office. The pending trials of Estrada did not improve her position as they provided opportunities for the former President and his supporters to raise the issue of presidential legitimacy. It took almost a year before President Arroyo could feel more confident of her presidency. This confidence was reflected in the 55 per cent approval rating she earned after eighteen months in office.1 Notwithstanding the fluctuations of popular support, Arroyo had embarked aggressively on an ambitious agenda of building a “strong republic”. This idea gained prominence in President Arroyo’s second State of the Nation Address (SONA), delivered on 22 July 2002, which in effect became the cornerstone of her administration. Since then the idea of a “strong republic” was used almost like a mantra to punctuate every speech by the President. Why the stress on having a strong republic? President Arroyo has been lamenting the state of the country’s development which, according to her is lagging far behind other countries. On several occasions, Arroyo candidly pointed out that the country’s preoccupation with politics had severely hampered its growth and development. In a recent speech delivered at the

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Armed Forces Headquarters in Camp Aguinaldo, Arroyo remarked that one of the fundamental weaknesses of the Philippines was the fact that the dominant classes and economic sectors had shaped its policies, especially economic ones. This was a problem that had plagued the country for decades and was a classic characteristic of a weak state.2 The only way out of this quagmire, according to Arroyo, was to correct the country’s basic weaknesses and focus on building a strong republic. Since this initiative was launched, critics of the Arroyo administration have questioned its wisdom. What exactly does this idea entail? According to Arroyo, there are two essential features of a strong republic. Firstly, it stands for the interest of the people regardless of class. Secondly, it assumes strong institutions and a strong bureaucracy to execute good policy and deliver essential services.3 Unless a state has good policies and empowered institutions, there will not be any meaningful economic development and social reform. Hence, as far as the Arroyo administration is concerned, a strong republic is intended to be “the bedrock of the victory [it seeks] over poverty within the decade”.4 Given the current state of the country’s political and economic condition, almost all Filipinos would probably agree with the President’s diagnosis of her country’s problems. The Philippines still lags behind some of its Southeast Asian neighbours in terms of economic performance and growth. More importantly, a number of decisive/important events in the course of 2002 would lend support to the President’s concerns. The Economics of Politics Reviving an ailing economy had been one of the top priorities of the Arroyo administration. During the first half of 2002, there were indicators that the economy was making some improvements and performed relatively better than in 2001. In spite of the persistent problems with budget deficits, the Philippine’s economic performance was actually quite robust. The macroeconomic environment continued to be generally favourable. Real gross domestic product (GDP) growth rate for 2002 was estimated to be 4.1 per cent,5 with exports growing at 4.1 per cent. The country’s electronic exports benefited from the acceleration of global demand for information technology (IT) products, particularly in the United States. Domestic consumer demand was also strong while the average inflation rate was relatively low at 3–3.8 per cent. In the President’s second State of the Nation Address, she highlighted her administration’s achievements in improving the economy. These included: making available 2,000 hectares of land as part of the land reform programme, provision of more low-cost housing for the urban poor, stabilization of prices of basic commodities, and the reduction of electricity costs. However, as Arroyo herself admitted, the task ahead was still fraught with serious challenges. Against the risks of a sluggish U.S. economy and the geopolitical consequences of the looming war in Iraq, economic conditions in the Philippines remain highly vulnerable. Efforts at economic recovery are

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subject to the vicissitudes of the external environment and of political and security developments within the country. To move forward, the government outlined three major policy areas which would be critical to the sustainability of the Philippine economy. First was the need to improve revenue or tax collection in the country. To address the country’s budget deficit, the government had targetted higher revenue collection. However, contrary to expectations, the Bureau of International Revenue (BIR) showed a huge shortfall in this regard. Between 1997 and 2001, tax revenues fell from 16.3 per cent of GNP to 12.7 per cent.6 The government’s efforts to address this problem suffered a major setback with the sudden resignation of BIR Commissioner Rene Banez in August 2002. Banez, who was the Commissioner for nineteen months, had initiated several reforms to improve the BIR operations and rid the Bureau of inept and corrupt officials.7 His resignation came at a time when there was heightened concern about the lower-than-expected revenue collection and a wider-thanusual budget deficit. Banez was reported to have been frustrated at his inability to push through with his own reforms, particularly his plans to lobby Congress to pass the Internal Revenue Management Authority (IRMA). The chief of this proposed new BIR agency would be appointed not by the President but by a board composed of government and private sector leaders. More importantly, the head would have the power to hire and fire BIR officials and monitor their progress in tax collection. Banez was said to have also been extremely exasperated with the kind of obstacles and resistance he met in undertaking reform. In the end, resistance to reform from within the BIR proved to be too much for the controversial chief. His resignation was therefore seen as a defeat for the administration’s efforts to fight graft and corruption in government. This setback, however, has not stopped Arroyo from pushing ahead with her anti-corruption reforms. The President was reported to have been stung by the observation of the U.S. Ambassador to the Philippines, Richard Ricciardone, that the perception of massive corruption in government was driving investors away. 8 Arroyo’s measures against corruption saw the Presidential Anti-Graft Commission (PAGC) investigating cases involving even Cabinet ministers. In August 2002, Arroyo approved the investigations of alleged graft complaints against six of her Cabinet secretaries, vowing to fulfil her promise not to have any “untouchables” in ridding the country of its negative image as a corrupt country. Graft investigations such as these had earlier led one of Arroyo’s Cabinet secretaries (or ministers) to resign when rumour spread that he was also being investigated for anomalies he had allegedly committed. On 13 August 2002, Education Minister Raul Roco, suddenly resigned after learning that the President had endorsed an inquiry against him by the PAGC based on a complaint by certain quarters in the Department of Education. Although the Palace had maintained that the probe was “routinary”, Roco was apparently offended at the way the probe was leaked to

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the media, thus raising doubts about his credibility.9 Incidentally, Raul Roco is now one of the major contenders in the presidential race. In spite of this incident and the difficulties that the investigations faced, several cases were still filed against government officials and certain members of the judiciary. In December 2002, former Justice Secretary, Hernando Perez, had to take official leave of absence after an allegation by a Congressman, Mark Jimenez, that Perez received P2 million from him. Jimenez had made the charge against Perez shortly before he was extradited to the United States in early January 2003 to face charges of fraud and other crimes. Jimenez had, for four years, tried to evade trial in the American courts for several counts of tax evasion, mail fraud, and illegal campaign contributions. Perez, pending investigation, was replaced as Justice Secretary in January 2003. Similar efforts had also been made by the Philippines’ anti-graft court. In August, the anti-graft court ordered a freeze on bank deposits believed to have been amassed illegally by ousted president Joseph Estrada. The court had also ordered a freeze on the property of two of Estrada’s co-accused, Charlie Ang and Yolanda Ricaforte, who were involved in a P4 billion peso scandal. All these reflected the government’s tough stance in its campaign to stamp out corruption. The second critical area that needed to be addressed to sustain the Philippine economy was strengthening the financial system by cleaning up the bad loans in the banking sector. At the end of October 2002, the nonperforming loans (NPLs) of commercial banks stood at 16.36 per cent while non-performing assets were as much as 14.6 per cent. The government had been working on these problems, as reflected in the administration’s priority bills in 2002, one of which was the enactment of the Special Purpose Vehicle Act (SPVA). The SPVA aimed to resolve the problems of NPLs by allowing and giving incentives to foreign and other local banks to sign agreements with asset-management companies (AMCs) to acquire the NPLs. In January 2003, the SPVA was finally signed into law (Republic Act 9183) together with the E-Procurement Act (Republic Act 9184) which aims to boost efficiency and transparency in public-sector purchasing. This E-Procurement Act complements the government’s effort at tackling graft in the bidding of public contracts by improving transparency and the quality of supervision in the country’s financial sector. With the SPVA, the NPLs could be reduced by as much as P200 billion, while the E-Procurement Act could bring in a savings of P30 billion, the amount lost annually to corruption.10 The third area of concern was improving the country’s infrastructure and attracting more foreign investments. The state of the country’s infrastructure has not improved and is in fact deteriorating in some places. Progress is taking place at a snail’s pace because of inadequate funding. With the government’s financial constraints, expenditures on roads and transport are expectedly less compared with the funds allocated to priority areas such as health-care and education, as well as agriculture. There is also an imbalance in the quality of

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infrastructure between the country’s major capitals (that is, the National Capital Region, the economic zones at the former U.S. bases at Subic Bay and Clark, which are mostly concentrated in the northern part of the country) and the less developed regions in Southern Muslim Mindanao and parts of the Visayas. Infrastructure projects have also been bogged down by problems of graft and corruption. The latest example is the controversy surrounding the building of the new Terminal 3 at the Ninoy Aquino International Airport in Manila. After more than a year of investigation and Senate hearings, it was found that the contracts awarded to the Philippine International Air Terminals Company (PIATCO) for the construction of the Terminal were full of irregularities. The Senate’s blue ribbon committee later found that all the five contracts were null and void as they involved fraud and corruption. The blame was, however, shifted to the previous administration. So far, the issue remains unsettled.11 The economic tasks ahead are indeed daunting. They will pose a serious challenge to her efforts to achieve a strong republic, especially if one adds to them the political and security concerns that the government has to deal with. Sequel to the War on Terrorism President Gloria Macapagal-Arroyo in the second State of the Nation Address declared war on terrorism, arguing that “breaking the back of all forms of terrorism and criminality” was essential to lay the foundation of a strong state. President Arroyo was the first Asian head of state to support the U.S.-led international coalition in the “war on terrorism”, in the aftermath of the horrific terrorist attack on the United States on 11 September 2001. During the U.S. military campaign in Afghanistan, the Philippines offered the former U.S. military bases in Clark and Subic as transit points or staging areas for the U.S. and other coalition troops. Manila’s active support for America’s global fight against terrorism can be seen against two significant factors: firstly, it offered the Philippines the opportunity to highlight its problems with homegrown terrorist groups and seek U.S. assistance for its own war on terrorism; and secondly, it also provided a propitious time to reinvigorate Philippine– American relations (this is discussed later). During the past three to four years, the Abu Sayyaf Group (ASG) had become more than a nuisance to the peace and order situation in Mindanao province. As a break-away group of the Moro Islamic Liberation Front (MILF), the ASG were regarded as rag-tag bandits who gained notoriety after a series of kidnapping sprees. Their money-for-ransom activities reached a peak in April 2000 when the ASG went beyond the Philippine borders to kidnap twentyone hostages from the Malaysian resort of Sipadan. The hostages were later released after the ASG pocketed an estimated ransom of US$25 million. The loot gained from these abductions only led to another dramatic hostage taking in May 2001 in the Philippines’ Dos Palmas Resort. Twenty resort staff and guests were seized, including three Americans: the missionary couple Martin and Gracia Burnham, and Guillermo Sobero. It took more than a year to

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resolve this hostage problem, exposing the appalling weaknesses of the military in handling the situation. Exacerbating the problem was the alleged collusion between the ASG and some members of the military, implicating the latter as party to the ransom arrangements. Although several investigations were conducted by the authorities, the findings were largely inconclusive and brought to naught efforts to uncover the truth. Unfortunately, in spite of the President’s “no-ransom policy”, some hostages were released after their families were reported to have paid the ransom. In the meanwhile, Sobero was found murdered while the Burnhams and a nurse, Deborah Yap, remained in captivity. Events changed dramatically after 11 September. It was not difficult for the Arroyo administration to flag the ASG problem in order to seek assistance from the United States, as the extent and reach of Al-Qaeda’s terrorist network and its linkages with the MILF and the ASG surfaced. After tracing the nature of the linkages, it was soon revealed that the Philippines was one of Al-Qaeda’s operational hubs. As one analyst put it, the Philippines had “become an American front-line state in the war on terrorism”.12 The Bush Administration promised to grant the Philippines US$100 million in development aid and another US$55 million to boost the military’s ability to fight local insurgents. The Philippine military, which had for some time lamented on the woeful state of its military hardware, welcomed this assistance. Within the framework of the Joint Philippines–U.S. bilateral military training exercises — codenamed Balikatan 02 (shoulder-to-shoulder 2002) — at least 1,500 American soldiers were engaged in anti-terrorism training with their Filipino counterparts. The training included the use of state-of-the art military equipment and communications facilities to improve the inter-operability of Philippine and U.S. troops against terrorists. For six months from January 2002, 660–800 soldiers of the U.S. Special Forces were also stationed on the island of Basilan, a remote area in the southern Philippines to help the Philippines military pursue members of the ASG, which has since been put on the U.S. list of terrorist organizations. The joint training exercises have had mixed results. The presence of U.S. troops had helped in the rescue of Gracia Burnham,13 and in the death of the ASG leader, Abu Sabaya who was killed during a military operation in June 2002.14 At the same time, the joint military exercises have not resulted in more captured or dead terrorists. Meanwhile, bombings and kidnappings continued. In October 2002, there were at least two bombing incidents in Mindanao’s Zamboanga City, which not only killed Filipinos but also a U.S. soldier. More significantly, the Arroyo government’s war on terrorism has given rise to domestic concerns about the consequences of this campaign on the government’s efforts to move ahead with peace talks with the Muslim secessionist groups — the break-away sections of the Moro National Liberation Front (MNLF), and the Moro Islamic Liberation Front (MILF), — as well as with the Communist Party of the Philippines and its military arm, the New People’s Army (CPP/NPA).

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The Illusive Peace Since the start of the joint U.S.–Philippines military exercises for combating terrorism, there have been growing concerns that these would endanger the prospects for peace between the government and the Muslim secessionist groups. Under the Ramos administration, the MNLF had been co-opted by the government under the 1996 Peace Agreement, which led to the establishment of the Autonomous Region of Muslim Mindanao (ARMM — comprising those provinces and cities in Southern Mindanao that had voted to join the configuration), and the creation of the Southern Philippine Council for Peace and Development (SPDC). The government’s experience with the ARMM under the leadership of Nur Misuari (who was then the head of MNLF) was, however, not pleasant. Misuari was elected as Governor of the ARMM and chaired the Southern Philippine Council for Peace and Development (SPDC) for five years. However, he had little to show for his efforts after his term ended and he faced complaints of corruption. There was a power struggle within the MNLF and realizing that he was going to lose his chance of getting re-elected as governor, Misuari attempted an uprising in November 2001 which eventually led him to flee to Malaysia where he sought political asylum. Malaysia, however, refused his request and after some time deported him back to the Philippine where he has since been imprisoned, facing charges of rebellion and sedition. Between the two groups, the MILF has posed the greater military challenge. Notwithstanding the 1996 peace agreements and the 2001 ceasefire agreement between the government and both the MNLF and MILF, the secessionist groups have accused the past and present administrations in Manila of lacking sincerity in arriving at a political solution to their demands. Moreover, the military offensive conducted against the MILF in July 2000 which drove the MILF from their main camp, Camp Abubakar, gave rise to certain reservations among certain factions within the MILF/MNLF groups that the government was bent on eradicating them. Past Philippine presidents had sought to dispel these fears by outlining a comprehensive plan to resolve the problems of Muslim separatism. These consisted of policies and programmes that simultaneously address the political, socio-economic, and security aspects of the problems in Muslim Mindanao. President Arroyo has herself followed up on this with her own fourteen pillar approach to combat terrorism that essentially integrated important socio-economic programmes to address these related concerns. However, the Philippine–U.S. Balikatan exercises caused some consternation among Muslim groups who perceived these counter-terrorism operations as directed not only at the ASG groups but also at themselves. Closely interlinked with the Muslim separatist problem is the potential impact this war on terrorism and the joint Philippine–U.S. exercises could have on the ongoing peace efforts of the government with the Communist Party of the Philippines (CPP) and its military arm, the National People’s Army (NPA). The NPA still has an estimated 12,000–13,000 strong army (compared with 25,000 in the late 1970s and early 1980s). The government

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has been battling this insurgency for more than three decades. Nevertheless, some modest gains have been made as certain members of the CPP have joined the political mainstream and taken part in the country’s political process. For example, Satur Ocampo, former spokesman of the National Democratic Front (NDF) — the political arm of the CPP/NPA — and current leader of the leftist Bayan Muna party was elected as congressman in the country’s last national election. Formal peace talks between the Arroyo government, the CPP, and the NDF had been suspended since last year after communist rebels assassinated two legislators. However, “back-channel” talks have continued, with the government opening lines of communication with the CPP, NPA, and the NDF. The situation took a turn for the worse, however, when on 9 August the United States placed the CCP/NPA on its list of foreign terrorist groups and froze their assets.15 The announcement was made shortly after the visit of U.S. Secretary of State Colin Powell to the Philippines on 2 August 2002. Treading through the issue carefully and in an attempt to deflect the outcry against the U.S. decision, Arroyo tried to qualify the government’s position and distanced itself from the U.S. position. Arroyo declared that she recognized the communists’ right to political belief as long as they did not attempt the violent overthrow of government.16 Nevertheless, the negative reactions that followed included threats from CPP/NPA leaders that they would go after U.S. military advisers and hit American economic interests in the country. The CPP/NPA also repeated accusations that the government was a “puppet” of the Americans. The group had in the past strongly objected to the presence of American troops in the country, even after the closure of the American bases in 1992. Amid the stance of Washington against the CPP/NPA and the reinvigoration of Philippine–U.S. relations, the communist rebels have branded U.S.–Philippines bilateral co-operation on terrorism as a “Trojan horse” to revive the U.S. military bases in the country. This idea has been shared and articulated by nationalist groups in the Philippines. Public Disquiet over “Militarism” Adding to Arroyo’s woes has been the growing public disquiet over the perceived use of strong-arm tactics in the government’s implementation of the new internal security campaign. Vowing to crush crime and terrorism that are serious threats to her strong republic, Arroyo launched a “total offensive” approach in the new internal security campaign in July 2002. The campaign sought to streamline the operations between the Armed Forces of the Philippines (AFP) and the Philippine National Police (PNP). This new security thrust required, among others, the modernization of the armed forces’ doctrine to deal with new and unconventional threats to national security. Listed under these new threats are illegal drugs, “white-collar” crimes, and terrorism. In the government’s “total offensive approach”, military and police operations to fight communist insurgents, extremist groups, criminal syndicates and economic

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saboteurs would be combined with socio-economic programmes. President Arroyo took a personal interest in pushing such efforts, declaring in September 2002 that she was personally taking full strategic control of the internal security campaign. So far the campaign has had mixed results. Rampant incidents of kidnapping were reported to be on the decline. The arrests of criminal elements and drug traffickers were usually given full media coverage and offenders have been publicly shamed. Since the President was almost always present during the media coverage of the arrests of offenders, she has inadvertently earned herself the title of the “new Czarina.” The government’s tough stance on criminals has drawn diverse public reactions. On the one hand, there was the genuine sense of relief that the administration was finally getting its act together in combating crime. On the other, the government has been attacked for its “militaristic” approach in addressing internal security matters. There were reservations that Arroyo’s excessive emphasis on the national security doctrine could lead to a curtailment of civil and political liberties.17 So far, such concerns have been unfounded. Philippine–U.S. Relations: The Security Dilemma of a Revitalized Alliance18 Adding to the political problems that the Arroyo government has had to confront are the domestic political rumblings that are opposing the revived ties between the United States and the Philippines. The new phase of this Philippines–U.S. relations, particularly the bilateral co-operation to fight terrorism, has once again brought to the fore both the old and the new tensions that have riddled this relationship. The country’s support for the U.S.-led war on terrorism, as well as its own, has evoked a diversity of reactions ranging from outright opposition by the far-left to rising concerns about diminished sovereignty by the ultra-right. Like déjà vu, the current tide of unrest and opposition harks back to the time in the 1970s and 1980s when the country was deeply divided on how best to handle the American military presence in the country. Issues of national sovereignty and the alleged unconstitutionality of the presence of American troops in the Philippines have found resonance not only among student activists, militant labour groups, certain civil society groups, but also among members of the opposition parties — including the country’s Vice-President, Teofisto Guingona. Guingona, who served as the Secretary of Foreign Affairs, resigned from his Cabinet post on 3 July 2002, after reported differences with Arroyo on the deployment of U.S. troops in Mindanao’s Basilan island (under the Balikatan 02-1 framework) and the negotiation of the Philippine–U.S. Mutual Logistics Support Agreement (MLSA). Guingona had been wary about the possibility that under the MLSA, the current U.S.–Philippines Mutual Defence Treaty (MDT) might be expanded to provide basing rights to the United States to allow the re-stationing of U.S. troops, which are prohibited by the country’s Constitution. Some members of Congress have joined the foray of criticisms,

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including Senate Minority Leader Aquilino Pimentel who had also censured the administration for keeping the negotiation on the MLSA away from Congress and instead delegating it only to the Department of Defence and its American counterpart. Arroyo and her Defence Secretary Angelo Reyes had maintained that the MLSA only dealt with administrative and accounting arrangements, and was only a low-level executive agreement between departments without the need for Senate ratification. Although the MLSA has been signed, the bilateral co-operation on terrorism and the deployment of American troops in the country have turned into one of Arroyo’s major political headaches.19 After the end of the six-month Balikatan 02-1 exercise, a new military exercise was being planned for January 2003. These anti-American sentiments could fuel another political firestorm, which the government — already grappling with the uphill tasks of reviving the economy, establishing political order, and resolving the security threats — can ill afford. To be sure, renewed American military assistance to the Philippines has been a welcome boon to the country’s efforts at defeating the Muslim insurgents and communist rebels. There has been a general exasperation with the Philippine efforts in Mindanao. A nationwide survey cited by a government spokesman, Rigoberto Tiglao, which was conducted by the private pollster, Social Weather Stations, apparently showed an 81 per cent acceptance of having U.S. troops in the fight against the Abu Sayyaf.20 On the other hand, this has provided ammunition for opposition and nationalist forces in the country to rally against the government and threaten the country’s fragile political stability. During several street protests that took place in Manila, Arroyo was portrayed as an American stooge who depended on American support for her political survival. A leftist Congressman was quoted as saying that, “American support for [Arroyo’s] government discourages groups plotting against her, or those out to shorten her stay or challenge her in 2004. She [Arroyo] realises that the police and military establishment looks at who the United States supports.”21 Amidst the public clamour, President Arroyo has maintained her resolve to continue to promote closer co-operation with the United States. However, in trying to balance domestic sentiments against government policies, sometimes the results could be disastrous. Manila’s position on the impending U.S. attack on Iraq is a good example. Manila’s Stance on the U.S.–Iraq Confrontation: Flip-Flops in Foreign Policy The looming U.S. military attack on Iraq has also stirred mixed responses in the Philippines. On 10 September, even without a formal request, Manila announced that it would allow American warplanes and vessels to land, dock, refuel, and fly over the Philippines. The offer was said to be in line with the Philippines’ commitment to the global anti-terrorism war authorized by the United Nations Security Council following the 11 September attacks on the

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United States. However, following the announcement of this policy, the Arroyo administration found itself having to revise its position.22 Manila announced that the Philippines would consider allowing American planes to use its air space only for “humanitarian purposes”, and only if the UN Security Council supported the U.S. action against Iraq. The shift in stance was not surprising considering the barrage of criticisms hurled against the government. This time the Arroyo administration came under attack for its perceived “blatant and solicitous” support for the belligerent and unilateralist U.S. stance. The government found itself criticized even by outside parties. This resulted in several policy flip-flops. For example, the offer of airspace was withdrawn when Iraq’s charge d’ affaires in Manila complained that the country’s pro-U.S. position was “encouraging war”. However, the withdrawal was revised when, according to media reports, the Asian Wall Street Journal criticized the Philippines for its withdrawal of the airspace offer, arguing that it was “an affront to an ally that had earlier sent thousands of troops to the Philippines to help in the fight against home-grown terrorism.”23 What immediately followed was a more nuanced and ambiguous statement that stated that the Philippines was prepared to extend “political, security and humanitarian assistance to the United States in the pursuit of its most vital interest, which coincides with our vital interests, to defeat terrorism.” Beyond the Philippine–U.S. equation, there were compelling reasons for caution and concern over the possibility of a U.S. attack on Iraq and the use of Philippine airspace. Among them were: 1. The impact the war would have on the 1.4 million documented Filipino workers employed in the Middle East. Repatriating overseas contract workers, in case of a full-scale war breaking out between the United States and Iraq could cost the Philippine Government an estimated US$162 million.24 It is estimated that remittances from overseas contract workers make up 10 per cent of the country’s GDP. 2. The impact on the Philippines’ oil supply. The country imports most of its oil supplies for manufacturing and other major industries. The Middle East is its biggest supplier. 3. Possible spillover effects of the Iraqi attack on the country’s own local Muslim population. These could further jeopardize the government’s efforts at reaching peace accords with the MNLF and the MILF. Defusing a Bilateral Crisis Around the same time, Manila found itself having to manage another crisis — that involving thousands of deported illegal Filipino migrants from neighbouring Malaysia and defusing what could have become another bilateral spat. When Malaysia introduced strict laws against illegal immigrants on 1 August 2002 with a four-month grace period, there was an influx of thousands of

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Filipino illegals deported from Sabah. Allegations that the illegal migrants were poorly treated in cramped deportation camps and reports of deaths caused furore in the Philippines. Television footages of crowded holding centres in Sabah and the reported rape of a thirteen-year-old refugee further fanned resentment, causing Manila to lodge two official complaints to the Malaysian Government. A personal intervention by Arroyo with Malaysian Prime Minister Mahathir Mohamad temporarily halted the deportation of Filipino illegals, but this did not stop the country’s politicians from calling for a revival of Manila’s dormant claim to Sabah.25 The Philippines has a long-standing claim on Sabah, which it says was part of the sultanate of Sulu in the southern Philipines. There are about 500,000 Filipinos living in Sabah, a huge number of whom are illegal immigrants.26 Some are also refugees from the on-and-off Muslim separatist rebellion which began in the 1970s. Notwithstanding the barrage of criticisms from the Philippine media and emotional outbursts from parliamentarians, the Arroyo government managed to stay above the fray and refused to heed the call to revive the Sabah claim. Instead, Arroyo sent emissaries to Malaysia to oversee the arrangements for a smoother deportation of illegal refugees and to work closely with the Malaysian authorities to improve the conditions of illegals in holding camps. In the end, patient and quiet diplomacy worked. The sudden influx of illegal immigrants from Sabah was another headache to the Arroyo administration, and in particular to the southern Philippines. It raised further concerns about the government’s limited resources to accommodate and deal with the returning Filipinos. Local government officials in the south had already complained that the influx was an added strain on their limited resources and had, in some instances, led to a rise in crime rates. However, the broader worry with regard to returning workers was the stark reality of the burgeoning unemployment rate. Already, a third of the country’s labour force of 35.1 million was either jobless or underemployed.27 Conclusion President Arroyo’s candid admission in late November 2002 that the country was too consumed by politics and that dominant forces and vested interests were getting in the way of her laying down the foundations for her “strong republic” might perhaps be perceived as an indication of the extent of her frustration and helplessness. One could even read her decision to withdraw from the 2004 presidential race as akin to conceding defeat in what would have been a highly divisive exercise. Arroyo herself acknowledged that the 2004 elections “may well go down in history as [our] most bitterly contested election…consequently stalling national growth for a few years more as a result of lost momentum”.28 Yet, one could not but also admire the willingness of a leader to give up power at a time of relative strength in order to work on her vision. Regardless of the concerns that in the remaining eighteen months of her administration

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Arroyo could become a lame-duck President unable to push ahead with the reforms she has embarked on, one must note that this is the first time in Philippine history that a leader has willingly abnegated power to convince her people of her seriousness in seeing through her agenda of reforms. Whether or not this act should and could be construed as a sacrifice, Arroyo’s relief from the “burden of politics” has now given her a free hand to push ahead with her “wars” on corruption, crime, and terrorism, as well as tackle the economic reforms head-on. How much will materialize out of this agenda for action remains to be seen in the months to come. Arroyo has found herself in the unenviable position of having to strike a delicate balance between adopting a tough stance to get the tasks done yet avoid risking alienation and/or causing deeper division within her government. But as one commentator has argued, nothing short of her withdrawal from the presidential race could have given Arroyo the “tool” to transform her presidency into “something that could shake the country out of its lethargy” and initiate urgent policy and economic reforms.29 Arroyo has also called for the healing of political divisions among contesting parties. Towards this end, her administration has planned to set up a “Council of State” which would bring together representatives from a diversity of political interest groups in the country who share the fundamental principles of adherence to the Constitution, national sovereignty, territorial integrity, and the rule of law. It is envisaged that the Council of State would work with the President to achieve the goal of a “united government”. Indeed, as the remaining eighteen months start to unfold, Arroyo’s real work is only beginning. With her vision of a “strong republic”, she has set herself the task of almost reinventing the Philippines — liberating it from the shackles of poverty, vested economic and political interests, and building strong institutions. One can only hope that she stays the course and is not deflected from it by the challenges that are sure to come.

NOTES 1. “The Social Weather Station (an independent company that conducts periodic polls) had conducted two nationwide surveys in early and mid-2002 to gauge President Arroyo’s popularity. The surveys showed that 55 per cent of the respondents were satisfied with the President’s performance. 2. “Too Much Politics Makes Manila Weak”, Straits Times, 30 November 2002. 3. See “State of the Nation Address” by President Gloria Macapagal-Arroyo, 22 July 2002, downloaded from . 4. Ibid. 5. See the Economist Intelligence Unit Country Forecast: Philippines, December 2002. 6. AsianInt Economic Intelligence Review, downloaded from . 7. “BIR Chief Quits, Cries Sabotage”, Philippine Inquirer, 20 August 2002. 8. “Arroyo: I Kept my SONA Promises”, Philippine Star News, 19 July 2002. 9. Philippine Star News, 16 August 2002.

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10. “GMA Vows to Stamp Graft, Revive Economy”, Philippine Star, 22 January 2003. 11. See “Senator: Palace Graftbuster should be Investigated”, Philippine Inquirer, 23 January 2003. 12. Angel M. Rabasa, “Southeast Asia After 9/11: Regional Trends and U.S. Interests” (Testimony presented to the Subcommittee on East Asia and the Pacific House of Representatives Committee on International Relations, 12 December 2001), p. 10. 13. Gracia Burnham’s husband, Martin, together with the other kidnapped victim, Deborah Yap, were killed during the rescue operations. 14. In spite of the military reports that Sabaya was killed in the ambush, some newspaper accounts have raised doubts since Sabaya’s body was never found after he fell into the river during the military shoot-out. 15. “Palace: NDF Pull-out from Peace Talks not Confirmed”, Philippine Star, 20 August 2002. See also Manila Bulletin, 16 August 2002. 16. “Gloria: U.S. True Friend of RP”, Philippine Daily Inquirer, 20 August 2002. See also Ann Bernadette S. Corvera, “Communism turned Terrorism: The GRP-NDP Peace Talks in a More Precarious Situation”, Philippine Star, 2 September 2002, downloaded from . 17. Philippine Star, 24 July 2002. 18. The Republic of the Philippines–United States Alliance has been founded on the Military Bases Agreement (MBA) of 1947, the Military Assistance Agreement (MAA) of 1947, and the Mutual Defence Treaty (MDT) of 1951. In 1991, the Philippines terminated the MBA, which saw the closure of two American bases, Clark Air Base and Subic Naval Base. The Philippines also watered down the MAA, and thus the alliance arrangement is now founded solely on the MDT. 19. Philippine Star, 29 November 2002. 20. As cited in Marites Sison, “Return of U.S. Troops Stirs Political Firestorm”, at . 21. Ibid, p. 4. 22. See “Philippines to Allow U.S. Use of its Facilities,” Straits Times, 10 September 2002; “RP Not Committed to War on Iraq”, Philippine Star, 11 September 2002; “Government Flip-Flops on Iraq”, Philippine Inquirer, 17 September 2002, and “RP Re-affirms Commitment to War Vs. Terror”, Philippine Star, 20 September 2002. 23. Philippine Inquirer, 17 September 2002. 24. “P8.6b Needed to Repatriate Filipino Workers from Gulf”, Philippine Inquirer, 8 September 2002. 25. “Who will revive RP’s Sabah claim?”, Philippine Star, 29 August 2002. 26. It was estimated that there are about 300,000 “undocumented” workers in Sabah, see Straits Times, 27 September 2002. 27. “Manila Braces Itself for Return of more Illegals”, Straits Times, 7 September 2002. 28. Speech of President Gloria Macapagal-Arroyo on the 106th Anniversary of the Martyrdom of Dr. Jose Rizal, 30 December 2002, downloaded from . 29. “People more certain of light at the end of tunnel”, Philippine Inquirer, 20 January 2003.

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Southeast Asian Affairs 2003, pp. 228–38

PHILIPPINE–AMERICAN SECURITY RELATIONS AFTER 11 SEPTEMBER Exploring the Mutuality of Interests in the Fight Against International Terrorism

Noel M. Morada

Introduction The rejuvenation of Philippine–American security alliance in the aftermath of the 11 September 2001 terrorist attacks on the United States has created opportunities and expectations for both countries in their fight against international terrorism. For the Philippines, supporting Washington’s war essentially opened channels for increased U.S. military assistance that enabled the Armed Forces of the Philippines (AFP) to gain the upper hand in its fight against local Islamist terrorist and secessionist groups led by the Abu Sayyaf Group (ASG) and the Moro Islamic Liberation Front (MILF). On the other hand, the United States gained much more from the revived alliance because it was able to secure a mutual logistics accord that would enable it to use Philippine territory in its campaign against international terrorism. The security interests of the Philippines and the United States on the issue, however, are by no means absolutely mutual. This chapter examines the nature and dynamics of Philippine–American security relations since 11 September, and looks at the influence of political and economic factors in the domestic, regional, and international levels that continue to shape the Philippines’ policy of supporting the United States’ war against international terrorism. Bilateral Alliance: An Overview Philippine–American security relations, dormant since the removal of the U.S. military bases in Clark and Subic Bay in 1992, were reinvigorated following the tragic event of 11 September. Philippine President Gloria Macapagal-Arroyo and U.S. President George W. Bush have both considered international terrorism as a serious threat to international security, and both leaders have pushed for closer military co-operation between their two countries in the fight against terrorism. However, the mutuality of Philippine and American

NOEL M. MORADA is an Associate Professor of Political Science, University of the Philippines Diliman, Quezon City, and Executive Director, Institute for Strategic and Development Studies (ISDS), Inc., Quezon City, Philippines. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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security interests on this issue was complicated by domestic and external factors that to some extent have constrained their revitalized bilateral alliance, especially for the Philippines. For one, the deployment of a small contingent of U.S. forces in Mindanao, in February 2002, caused the re-awakening of anti-American sentiments among Filipino nationalist legislators and civil society groups — a kind of reverse déjà vu that preceded the closing days of American military presence in the country in the early 1990s. The “return” of the Americans was even more controversial because, for the first time, the annual joint military exercises between the United States and the Philippine armed forces took place in an area of Mindanao that was close to the combat zone. Later in the year, the Mutual Logistics Support Agreement (MLSA) between the two countries, which was signed in November 2002, became the object of anti-American feelings as many Filipino legislators and civil society groups criticized the agreement as unconstitutional. This stemmed largely from the fact that Filipino and American defence and foreign affairs officials negotiated the said agreement away from public scrutiny despite strong opposition from various groups in the Philippines. Domestic Opinion: Absence of Consensus Public opinion in the Philippines has been generally supportive of American military presence in the country in the context of the joint military exercises with the United States. Following a six-month U.S. military mission that ended in July 2002, Pulse Asia, a reputable polling institution in the country, reported that 73 per cent of Filipinos who were aware of the joint RP-US military exercises were in favour of the American military mission. Not surprisingly, support for U.S. military presence was highest in the southern part of the Philippines, which cited economic gains as well as transfer of military skills to Filipinos as foremost reasons for backing American involvement in the fight against the Abu Sayyaf Group.1 However, a number of Filipino politicians, non-governmental organizations (NGOs), and the media have expressed opposition to allowing U.S. troops in the combat zone to be indirectly involved in the Philippine armed forces’ military operations against the ASG and other terrorist groups. Some Filipino opposition legislators even questioned the legality of U.S. troop deployment in Mindanao during the Balikatan 02-1 exercises and the wisdom of holding joint military exercises in that part of the country. For their part, opinion-makers in the local media opposed to the Balikatan exercises played up the risks of having American troops indirectly involved in the military operations against the ASG. They argued that the Philippines might suffer the same fate as Vietnam in the 1960s, especially if U.S. forces came under attack not only from the Abu Sayyaf but also from the renegade supporters of Nur Misuari’s faction in the Moro National Liberation Front (MNLF) and from the MILF guerrillas. In such an event, the United States could be drawn into an essentially domestic conflict. Meanwhile, non-

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governmental organizations, particularly the militant nationalist and antiAmerican groups, have portrayed the presence of American troops in the Philippines as another “imperialist” comeback, and made allegations of human rights violations in Basilan during the joint military operations against the ASG in early February 2002. Within the Muslim and Christian communities in Mindanao, opinion on American military deployment has been at best vacillating, if not divided. Parouk Hussin, the governor of the Autonomous Region in Muslim Mindanao (ARMM), was initially opposed to the deployment of U.S. troops close to Basilan but later on became convinced that American military assistance was needed in dealing with the Abu Sayyaf. Although he recognized that the Abu Sayyaf might have some linkages with the Al-Qaeda, he also argued that equating the former with the latter was a bit of an exaggeration. For his part, Esmail Kiram, the Sultan of Sulu, expressed support for the U.S.–Philippine joint military exercises in Mindanao and condemned the terrorist activities of the Abu Sayyaf, which also has bases in the Sulu islands. In general, both Christian and Muslim residents, local government officials, and traders in Mindanao are supportive of the joint Balikatan exercises. Apparently, they are tired of the violence perpetrated by Islamist terrorist groups and the inefficiency of the Philippine military in tracking down a small band of Abu Sayyaf bandits. They welcomed the presence of U.S. forces and the assistance they were able to provide to the Filipino soldiers if only because this would finally put an end to the threat posed by the Abu Sayyaf. Issues in Joint Philippine–U.S. Military Exercises Notwithstanding the support of the general public in the Philippines for the American military presence in Mindanao, a number of contentious issues have emerged with regard to the operational aspects of the Balikatan joint military exercises. Basically, while Philippine troops simply want to be trained and equipped, their American counterparts are said to be eager to see action in Basilan just like in Afghanistan. More importantly, three specific problems divide the Philippine and American military commands in the Balikatan exercises. First, Filipino defence and military officials were rather reluctant to give in to United States’ demands to call the joint military exercises “operations”, which would justify a prolonged and expensive American presence in the Philippines. Instead, Philippine officials have insisted on calling it “training”. Secondly, the Philippine Government wanted American forces in Basilan to be placed under the control of Filipino commanders, which was of course unacceptable to the U.S. forces. However, Filipino defence and military officials were willing to give in to the United States’ demand for parallel and separate command structures for both American and Filipino troops in Basilan. Thirdly, the Macapagal-Arroyo administration insisted that American forces be confined to the tactical command post, while U.S. soldiers expected that they would join their Filipino counterparts in combat operations in Basilan.2

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Divided Support for the U.S. War Against Terrorism Although President Macapagal-Arroyo has expressed strong support for the United States’ war on international terrorism, her administration has in fact been divided on this issue. On the one hand, Philippine defence officials see the short-term, tactical benefits of supporting America’s war against international terrorism; on the other hand, some foreign affairs officials have been more cautious and wary of the its long-term intentions in the region. Overall, Filipino defence and military officials have been fully supportive of America’s war on international terrorism. They do not see any problem with allowing the deployment of U.S. forces in areas of conflict, particularly those in Mindanao. In a meeting of the Philippine–U.S. Mutual Defense Board in 2001, Admiral Dennis Blair, the commander-in-chief of the U.S. Pacific Command, suggested to Philippine defence officials that the AFP set up training bases near areas of conflict where both American and Filipino troops can conduct training exercises. He reportedly offered to provide American help in building these training facilities. From a short-term perspective, the AFP stands to gain from increased military assistance provided by the United States, especially in the form of military training and the use of advanced and highly sophisticated equipment donated by the United States. Meanwhile, some foreign affairs officials, especially during the term of then Secretary Teofisto Guingona (who later resigned from the Arroyo Cabinet because of policy differences over the presence of U.S. troops in the country), privately expressed concerns over the real strategic and tactical interests of the United States in holding training exercises in “conflict areas” of Mindanao. They believed that the United States was attempting to gain greater access to the “southern backdoor” of the Philippines, ostensibly to monitor developments in Southeast Asia’s more volatile spots. This is due to the fact that the United States does not enjoy close military ties with Indonesia and Malaysia, and has been watching the political developments in Indonesia and the rise of Islamic revivalism in the region. Singapore, on the other hand, while having an access arrangement with the United States, has remained reluctant to provide an intermediate staging area for American forces because of limited space. Thus, for some Filipino officials, the Philippines’ strategic location makes it an appropriate staging area for contingencies in the Southeast Asian region. The U.S. military also needs the Philippines in order to enhance its limited infrastructure for refuelling and logistics to support its operations in the Gulf region as well as in the Western Pacific area.3 Contextualizing the Threat of Terrorism Domestic and regional factors have also shaped the Philippines’ overall policy on international terrorism in general, and its support for the United States on the issue in particular. While the Philippine Government undoubtedly gained some political mileage on the domestic front from supporting the United States, a number of factors continue to constrain that support. At the regional

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level, its support to the United States also had to be balanced with the collective ASEAN position on the issue. Domestic Sphere: Labelling the Terrorists for Political Mileage Containing the threat posed by terrorist groups and Muslim secessionist movements in southern Philippines was the primary reason for the MacapagalArroyo administration’s support for the U.S.-led war on terrorism. With increased American military assistance to the AFP, the morale and capabilities of the Philippine military have improved significantly, particularly in dealing with the notorious Abu Sayyaf. Although the ASG has been linked to the Al-Qaeda, some scholars and analysts remain doubtful of the continued connection between them. For some, the ASG has become a criminal gang that engages in murder and kidnap-for-ransom activities to raise funds for itself (estimated at about US$20 million). Neither does it have the intention nor the capability to strike at the United States even as it focuses mainly on the southern part of the Philippines. If anything, the ASG resembles more the traditional southern Philippine pirates rather than Osama bin Laden’s Al-Qaeda.4 Some American officials, however, believe that the Abu Sayyaf has established ties with the Jemaah Islamiyah (JI), a radical Islamic network that attempts to establish an Islamic state in Southeast Asia. Together with the ASG, the JI has been declared a terrorist organization by the United States and the United Nations.5 Since the end of the Balikatan 02-1 exercises in July, American-trained AFP forces have only flushed out the ASG guerrillas from Basilan but have not yet effectively neutralized them. While Abu Sayyaf forces have reportedly dwindled from a high of over 800 fighters in 2001 to just over 200 by the end of the joint military exercises,6 the ASG has continued to stage bombing attacks in some parts of Mindanao where some U.S. forces are still posted, one of which resulted in the death of at least one American soldier in October.7 With the ASG on the run, the Philippine military began focusing on the MILF, which is currently the largest Muslim secessionist group in southern Philippines, with a guerrilla force estimated at over 10,000. Compared with the ASG, however, the MILF has not been declared a terrorist organization even though there have been reports about its links with the Al-Qaeda and the JI.8 For its part, the MILF continued to deny reports that it has links with terrorist organizations and welcomed any government investigations on these allegations.9 At the same time, it warned that peace talks with the Philippine Government would collapse if police intelligence reports continue to link the MILF to terrorist activities.10 Ironically, it is the Philippine Government that has opposed any moves on the part of the United States to label the MILF as a terrorist organization. This is because the Macapagal-Arroyo administration has signed interim peace agreements with the MILF in May 2002, and continues to explore peace negotiations with the secessionist group.11 By opposing the inclusion of the MILF in the list of international terrorist organizations, the

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Philippine Government hopes to use this as leverage (more of a “carrot” than a “stick”) in order to persuade the secessionist group’s leaders to enter into formal peace negotiations, which is expected to resume in January 2003. Meanwhile, the Macapagal-Arroyo administration has astutely used the same leverage to the Communist Party of the Philippines/New People’s Party/ National Democratic Front (CPP/NPA/NDF), but more as a “stick” than a “carrot”. With the United States’ move to include the CPP/NPA/NDF in the list of terrorist organizations in August 2002, the Philippine Government hopes to force the communist insurgents to resume peace negotiations even as their funds get frozen.12 However, the CPP/NPA/NDF remained defiant and has threatened to attack U.S. troops in the Philippines if they get involved in counter-insurgency operations against the communist insurgents.13 From the foregoing, it is clear that the Philippine Government’s support for the United States’ war on international terrorism has effectively increased its political leverage vis-à-vis Muslim secessionist and communist insurgent groups. It has also benefited the AFP, particularly in improving its military capabilities in containing the ASG and the MILF, although there are still doubts whether this can be sustained over the long run. For now, at least, the combination of political and military strategies has enabled the Philippine Government to gain the upper hand vis-à-vis the ASG, the MILF, and the CPP/ NPA/NDF. Regional Sphere: Policy Co-ordination on Terrorism in Southeast Asia At the regional level, Philippine support for the United States’ campaign against international terrorism had to be weighed against the collective ASEAN position on the issue. Essentially, the ASEAN position calls for policy co-ordination and collective action in dealing with the threat of international terrorism. In its Declaration on Joint Action to Counter Terrorism in November 2001, ASEAN specifically underscored the need to strengthen co-operation at all levels — bilateral, regional, and international — in combating terrorism “in a comprehensive manner”. It also affirmed that at the international level, the United Nations should play an important role in this regard. This position was reaffirmed at the Ninth ARF Ministerial Meeting in Brunei in July 2002, and subsequently at the Eighth ASEAN Summit in Phnom Penh in November in the aftermath of the Bali bombing in October. Unlike the United States, which had focused primarily on the military approach in dealing with international terrorism, the Philippines shares the collective position of ASEAN in emphasizing the importance of a comprehensive approach to the issue. While the Philippines needed American military support in containing the threat posed by the ASG and the MILF, the Macapagal-Arroyo administration has repeatedly underscored the socialeconomic roots of terrorism. Thus, for the Philippines, the military approach must be pursued along with social-economic programmes that address the roots of the problem.

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Policy co-ordination with the ASEAN countries has also been an important aspect of the Philippines’ collective regional approach to terrorism. Specifically, it has entered into bilateral and trilateral agreements with Indonesia and Malaysia for information exchange and co-ordination of policies in combating terrorism in the region.14 Following the Bali bombing in October, President Macapagal-Arroyo wrote a letter to President Megawati Sukarnoputri for the activation of the regional anti-terrorism pact, which by then had expanded with the inclusion of Cambodia.15 Based on the above, the Philippines’ policy on international terrorism at the regional level is very much anchored on ASEAN’s collective stance, which basically emphasizes the need for a co-ordinated and comprehensive approach to the issue. Implicitly, the Philippines is also wary of American unilateralism in dealing with the problem of international terrorism, and its ties with ASEAN somehow serves as a “balancer” in this regard. To some extent, ASEAN’s regional perspective and collective position have constrained the Philippines’ support for the United States, albeit for a good reason. Disaggregating Mutual Interests The security interests of the Philippines and the United States may on the surface be “mutual” as far as the issue of international terrorism is concerned. However, there is a need to disaggregate the presumed mutuality of interests between them in order to see where the convergence of their interests ends. This is particularly true in the case of the Mutual Logistics and Support Agreement between the two allies, and the reluctance of the Philippines to support any American unilateral action against Iraq. Domestic Sphere: Negotiating the MLSA The signing of the MLSA between the Philippines and the United States in late November 2002 remains to this day a controversial agreement. This is due in part to the secrecy that attended the negotiations over the accord, as well as the continuing insistence of some Filipino legislators that the Senate must first ratify the MLSA for it to be binding. Moreover, some government officials, notably Vice-President Teofisto Guingona, have pointed to questionable provisions of the agreement that are either unconstitutional or contrary to the national interests of the Philippines. It is primarily because of these constitutional issues that Guingona urged the government to allow the Senate to review the accord. Prior to his resignation as Secretary of Foreign Affairs in July 2002, Guingona had objected to two specific provisions that were part of an earlier draft of the MLSA, but which were later dropped. These include, firstly, allowing U.S. forces to pick up supplies from the Philippines “in times of international tension, national emergency of either party or actual hostilities”; and secondly, allowing one of the parties to ask for logistic support “in times of peace… during operations and deployments outside the purview of the RP-US Mutual

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Defense Treaty, undertaken consistent with the UN Charter and agreed upon by the two parties.” These provisions, according to Guingona, would require the Philippines to perform acts bilaterally with the United States that are outside its obligations to the United Nations.16 Nonetheless, he also pointed to provisions in the signed MLSA accord that are vague and could possibly lead to the involvement of the Philippines in the U.S. war against Iraq. Specifically, he cited Article 3, paragraph 1 of the agreement that compels both countries to “co-operative efforts…within Philippine territory, or outside Philippine territory in cases where either Party, or both, have decided to participate”.17 Opposition Senator Aquilino Pimentel concurred with Guingona on this issue, as he claimed that the approval of the MLSA was rushed and secretly signed in order to prepare for possible U.S. war against Iraq, which requires the use of other countries’ facilities by U.S. forces for refuelling and re-supply purposes.18 Supporters of the MLSA, particularly in the Macapagal-Arroyo Cabinet, have argued that the accord is simply a “low-level executive agreement” that did not need the approval of the Senate. They also contend that there are provisions in the MLSA that allow for amendments and abrogation of the accord if it no longer serves the interests of the Philippines.19 To allay fears raised about possible Philippine involvement in a U.S. war outside the country, Defence Secretary Angelo Reyes pointed out that the MLSA was designed to enable “reciprocal logistical support” between Philippine and American forces for the duration of an “approved activity”, such as “combined military exercises and training, operations, and other deployments”. Although he maintained that such activities needed the approval of the Philippine Government, he failed to elaborate on the meaning of “other deployments”. He also emphasized the importance of the MLSA in supporting the joint military exercises between the AFP and the U.S. forces.20 It is clear from the foregoing discussion that, at the domestic level, there is so far no national consensus on what the Philippines interest is as far as the MLSA is concerned. For sure, the mutuality of interests between the Philippines and the United States in negotiating the MLSA is largely asymmetric. There is no doubt that the United States needs the accord more than the Philippines, primarily in order for the former to sustain its war against international terrorism.21 International Sphere: No to Unilateral Action on Iraq The Philippines appears to have achieved a higher degree of national consensus on the issue of America’s war on Iraq: that is, no support for U.S. unilateral action. The opinions of political élites and the public are generally in sync on this issue. Thus, it is in this particular area where the mutuality of interests between the Philippines and the United States clearly diverge as far as the war on international terrorism is concerned. The Philippines has also been in favour of a multilateral and diplomatic approach to resolving the problem between the United States and Iraq, especially since it has to take into

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consideration the welfare of more than a million Filipino workers in the Middle East that may be adversely affected by any U.S. unilateral military action in the area. In September 2002, the Macapagal-Arroyo administration categorically stated that it would not support a U.S. attack on Iraq, nor allow the use of Philippine airspace in such an attack unless there is a United Nations resolution for action against Iraq. Nevertheless, the Philippine Government still reserves the right to provide support for an attack on Iraq22 even though such support is restricted to the use of Philippine airspace for “humanitarian purposes”.23 In October 2002, Foreign Affairs Secretary Blas Ople reiterated that the Philippines was not prepared to join a U.S. military strike against Iraq amidst rumours of an impending American attack following a vote in the U.S. Congress that gave President Bush authority to use force against Baghdad. He also repeated the willingness of the Philippines Government to extend only “political, security, and humanitarian” assistance to the United States in the event that a war with Iraq broke out.24 In the same month, in a speech before the Foreign Correspondents Association of the Philippines, President Macapagal-Arroyo urged the United Nations Security Council to treat as urgent Washington’s charges against Iraq over reported stockpiling of weapons of mass destruction, even as she expressed hopes for a stronger United Nations. She also underscored the realities that shape her foreign policy even as she emphasized the relevance of the bilateral relationship between the Philippines and the United States. This included, among other things, the growing importance of ASEAN in the Philippines’ foreign policy decision-making; and the continuing significance of the international Islamic community for the Philippines.25 For his part, opposition Senator Aquilino Pimentel advised the Macapagal-Arroyo administration to be circumspect in defining its stand on the U.S.–Iraq conflict because of possible adverse impact on Filipino workers in the Middle East and on the Philippines’ oil supply. He also pointed out that it would be prudent for the administration to wait for a U.N. resolution on the matter before formulating a stand. Meanwhile, administration Senator Loren Legarda agreed that any resort to force against Iraq must have the mandate of the United Nations.26 Public support in the Philippines for the U.S. war against Iraq is also less enthusiastic as Filipinos are generally averse to military conflicts. In a public opinion survey conducted nationwide in November 2002, some 45 per cent of Filipinos polled did not want the Philippines to be involved in the war and they wanted the government to stay neutral. Some 16 per cent agreed that the United States should oust Saddam Hussein, but without the use of armed force. Of the 28 per cent that supported multilateral action on Iraq within the U.N. framework, half of them did not support the use of military force. Only 10 per cent of those polled said that the Philippine Government should give the U.S. full support. Of those who were in favour of supporting the Americans, 19 per cent were from Mindanao.27

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Evidently, the security interests of the Philippines and the United States are not mutual as far as the Iraq issue is concerned. Economic and political factors at the domestic, regional, and international levels continue to constrain the Philippines from supporting any American unilateral action against Baghdad. The Philippines’ stance on the issue is primarily anchored on the strong domestic support for a multilateral and diplomatic approach in resolving the issue between Iraq and the United States. Summary and Conclusion This chapter discussed the nature and dynamics of Philippine-American security relations after 11 September, particularly in terms of dissecting the mutuality of interests between the two countries as far as the war on international terrorism is concerned. From the foregoing discussion, it is evident that the security interests of the Philippines and the United States are not necessarily mutual, even though they are fundamentally asymmetrical. The Philippines no doubt benefits from the military assistance being extended by Washington in dealing with the local terrorist groups and Muslim secessionist movements. However, this is only for the short term. There is still much doubt whether the AFP will be able to sustain its operations against the Abu Sayyaf and the MILF in the long run without any American help or significant improvements in the AFP’s self-help capabilities. On the other hand, the United States has much to gain in revitalizing its bilateral security alliance with the Philippines, especially in the context of gaining access to the latter’s territory for logistical support in its war against international terrorism. Overall, the support of the Philippines to the U.S.-led campaign against terrorism will continue to be influenced by domestic political and economic factors, as well as its relations with its ASEAN neighbours.

NOTES 1. “Filipinos favor more U.S. anti-terror missions: Poll”, Agence France Presse, 13 August 2002, as cited in . 2. Manny Mogato, “America’s Agenda”, Newsbreak 2, no. 25 (13 February 2002), from . 3. Manny Mogato, “Beyond War Games”, Newsbreak 2, no. 25 (13 February 2002), from . 4. Sheldon W. Simon, “Southeast Asia and the US War on Terrorism”, NBR Analysis 13, no 4, July 2002, p. 34. 5. Eric Schmitt, “US and Philippines May Start New Training Mission”, The New York Times, 1 December 2002, from . 6. “U.S. counter-terrorism mission in Southeast Asia ends a ‘success’”, Agence France Presse, 31 July 2002. 7. Schmitt, op. cit. 8. “MILF: Terror links ‘serious blow’ to peace talks”, Inquirer News Service, 25 October 2002, from .

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9. “MILF welcomes government probe of its link with terror groups”, Philippine Star, 28 October 2002. 10. “MILF warns Manila of peace talks collapse”, Gulf News, Online edition, 26 October 2002, from . 11. “Palace stands pat on accords with MILF”, Inquirer News Service, 24 May 2002, from . 12. “Terrorist tag on Philippine communist may spur peace talks: Military”, Agence France Presse, 11 August 2002. 13. “Reds threaten to attack U.S. troops,” Philippine Star, 9 December 2002. 14. “RP to Jakarta, KL: Let’s activate anti-terror pact”, Agence France Presse, 17 October 2002, as cited in . 15. “Anti-terror pact pushed”, Inquirer News Service, 20 October 2002, from . 16. “New Philippine-U.S. accord specifies: No bases allowed”, Inquirer News Service, 22 November 2002, from . 17. “Palace: MLSA can be amended, abrogated”, Inquirer News Service, 23 November 2002, from . 18. “Ople dares Guingona to challenge MLSA”, Inquirer News Service, 23 November 2002, from . 19. Ibid. 20. “New Philippine–U.S. accord specifies: No bases allowed”. 21. “Manila, Washington to forge military-to-military pact”, Japan Economic Newswire, 24 July 2002. 22. “Philippines won’t support U.S. attack on Iraq without UN resolution”, Agence France Presse, 14 September 2002. 23. “Airspace offer to U.S. withdrawn”, Inquirer News Service, 15 September 2002, from . 24. “Philippines will not join any war on Iraq: FM”, Agence France Presse, 11 October 2002. 25. “UN must treat America’s charge vs. Iraq with urgency, says GMA”, BusinessWorld, 10 October 2002, p. 12. 26. “Airspace offer to U.S. withdrawn”. 27. Donna Pazzibugan, “45 per cent of Filipinos favor neutrality on Iraq conflict,” Inquirer News Service, 27 December 2002, from .

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SINGAPORE

Southeast Asian Affairs 2003, pp. 241–58

CRISIS, SELF-REFLECTION, AND REBIRTH IN SINGAPORE’S NATIONAL LIFE CYCLE

Kenneth Paul Tan

The year was marked by economic and security crises on the one hand, and on the other by national consultation, self-reflection, and self-critique, all with the aim of remaking a nation that by most accounts has not even been made yet.1 But a nation-building project with a clear start and a conceivable moment of completion is little more than a fiction, though a useful one because it narrates (and so explains) past, present, and future in ways that orientate individual experiences and values to the needs, purposes, and destiny of the imaginary nation. But Singapore, as with all living nations, can only be alive if its meanings and purposes are the site of an inconclusive and dialectical relationship between conflict and celebration, a slippery and fragile balance that serves to re-enchant the national imagination within processes of globalization that curiously homogenize as much as they fragment. Dealing with Terrorism: The Strategies On 11 September 2001, explosions rippled out from the economic and political capitals of the most powerful nation on earth, and the rest of the unsuspecting world was stunned. Ordinary people reacted with sympathy, empathy, and righteous indignation, while the political élite grappled internationally with the difficult question, “What is to be done?” For Singaporeans, the answers were clear as an increasing stream of media images put real names and faces to the shadowy, and at one time faraway, world of international political violence. It was no longer just a story of an American tragedy that inspired, far beyond its shores, a sense of pity and terror. It had become a sobering realization that slippery, transnationally organized, and highly motivated networks brought the possibility of terrorist activity much closer to home. In less than three months, the Singapore Government detained under the Internal Security Act fifteen men suspected of terrorist activities that included drawing up plans to attack U.S. interests in Singapore such as the Embassy and other commercial buildings, and even American personnel who were known to travel by the Mass Rapid Transit (MRT) system from the station at Yishun, a public housing estate. Other Western diplomatic buildings KENNETH PAUL TAN is Assistant Professor at the University Scholar Programme and Department of Political Science, National University of Singapore. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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were also targets. The suspects, comprising fourteen Singaporeans and a Malaysian citizen who had once been a Singaporean, were also alleged to have attempted to procure materials for making explosives. Thirteen of the suspects were described as active members of the Jemaah Islamiah (JI), a clandestine Islamic organization said to have links with the Al-Qaeda, the powerful international network headed by Osama bin Laden who has taken full responsibility for the “September 11” bombings.2 Eight months later, another twenty-one people were detained for more terrorist-related activities including the surveillance of possible targets for attack. But this time, alongside a U.S. naval vessel, the possible targets included nonAmerican ones such as Changi Airport, chemical plants on Jurong Island, reser voirs, water pipelines, MRT stations, and the headquarters of the Defence and Education Ministries. The arrests were announced to the public in September, the following month. Nineteen of the arrested were suspected members of the JI, and the remaining two were linked to the Moro Islamic Liberation Front, an Islamic rebel group operating in southern Philippines.3 It was becoming increasingly clear that the terrorist centre of gravity was shifting to Southeast Asia, and that this would become a regional problem. The Singapore Government, having identified up to eighty members of the JI operating within its own borders, has also named Abu Bakar Bashir as the Indonesian mastermind behind the JI regional networks that enjoy ties with the Al-Qaeda and that seek to establish by violent means an Islamic state linking Indonesia, Malaysia, southern Philippines, and southern Thailand. Bashir has denied any links with the JI and even the very existence of this organization, calling Singapore an anti-Islam ally of America that has made false accusations in order to give the superpower an excuse to intervene in Indonesia. After bombs went off in October in a popular resort town in Bali killing almost 200 people including a large number of Australian and European tourists, the Indonesian Government was sufficiently pressured to place Bashir under arrest, but in a hospital where the elderly cleric was recovering from an earlier collapse. The United States has officially designated JI as a terrorist group, naming Bashir as its leader.4 Several months before the Bali bombings, Jane’s Intelligence Review had predicted that Singapore was a very possible target of terrorist attacks.5 Vulnerability has been a leitmotif in thinking about national issues and in official accounts of Singapore’s modern history. The Bali bombings, JI revelations, and “9/11” have all served to secure questions of threat, the national interest, and survivability in a privileged position within the public discourse. The government’s strategy appears to be two-pronged: shifting its security apparatus to a much higher gear and controlling the ideological battleground on which Islam and terrorism can seem dangerously intertwined. The former has included the setting up of a National Security Secretariat to strengthen co-ordination and overall coherence of security agencies including

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the armed forces, the police, and the civil defence force. This is part of an effort to restructure and build up capabilities to counter terrorism. On a visit to Thailand in February, Prime Minister Goh Chok Tong called on ASEAN member countries to combine forces to contain terrorism by facilitating the smooth exchange of intelligence and information among each country’s security agencies, and perhaps even creating a special unit to deal with terrorism.6 A different set of complications have been involved in reading and controlling the ideological battleground, on which stands a multi-ethnic population that includes the significant minority of Malay-Muslim Singaporeans whose place in society has been the subject of both public and private discourse in the Republic’s post-1965 history. At various points in this history, the Malay community’s presumed orientation to external “racial” and religious networks called into question its loyalty to Singapore and its reliability in matters of national defence. The perception of the community as unwilling and unable to integrate into Singapore’s “common space” is derived from what are seen to be increasingly exclusive cultural-religious practices and the inability to keep up, particularly in the fields of education and business — due to what one writer has termed “the cultural deficit thesis”.7 The residue of this thesis still permeates, implicitly, the thoughts of most Singaporeans, including those Malays who have, either helplessly or conveniently, bought into such explanations about themselves.8 The tragedy of these public ways of trying to understand the “other” by simplifying and highlighting the differences is that these very ways of understanding become self-fulfilling and self-reinforcing. Boundaries are drawn, built upon, and increasingly difficult to cross in any confident and meaningful way. The government’s ideological strategy has included differentiation at two interrelated levels, of which the first is between terrorists and “true Muslims”. Since the terrorists claim to be true Muslims acting in the name of Islam, the government has had to participate in the worldwide strategy to prove that any kind of terrorism is essentially un-Islamic, conveying the message that it is not Islam that is coming under international censure and attack, but the un-Islamic terrorists who are masquerading as true Muslims while causing the deaths of a multitude of innocents. There has been great emphasis in media and public communications on “rehabilitating” Islam as a religion that encourages moderation and seeks to bring about the betterment of the whole of humanity. Moderate and progressive Muslim intellectuals have been called upon to speak about their non-violent vision of Islam, defining and refining such concepts as jihad (holy war) that can be a great source of confusion and fear in the wider global community. Rohan Gunaratna, a terrorism expert quoted by Prime Minister Goh, has recommended a strategy of unmasking the heretical nature of terrorist groups like the Al-Qaeda. Indeed Singaporean Muslim leaders, asserting that madrasah (Islamic schools that train religious teachers and clerics) and mosques in Singapore have nothing to do with groups like the JI, have

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publicly declared that such terrorist organisations’ use of Islam is a “cover in doing evil deeds”.9 The other level of strategic differentiation separates the Malay-Muslim mainstream from an extremist fringe within Singapore. Zulfikar Mohamad Sharif was the name and face given to this fringe. As the then Chief Executive Officer of a Malay-Muslim civil society organization, Fateha, Zulfikar had been one of the few public voices of dissent against the first wave of JI detentions in Singapore, claiming in a BBC interview that Singapore’s actions were motivated by its firm support for the United States and therefore indirectly for Israel. He also described Osama bin Laden as a better Muslim than the MalayMuslim Members of Parliament from the ruling People’s Action Party (PAP) who, he believed, were ineffective as the community’s political leaders. Zulfikar was portrayed as the instigator of a controversy over the wearing of tudung (headgear worn to protect the modesty of female Muslims). He had incited Malay-Muslims to contest the long-standing policy in national schools that prohibits female students from wearing the headgear during school hours because it is not a part of the official school uniform and because it discourages students of all ethnic backgrounds from interracting with one another and identifying themselves as Singaporeans above all. The episode led to the suspension of four six-year-old students whose parents insisted on defying the school regulations.10 The tudung episode divided Singapore’s Malay-Muslim community between those that agree with the government and the core values of “multiracialism”, quoting Islamic scripture to prove that the practice is not compulsory for young children, and the other side that views the episode as a form of unconstitutional religious persecution.11 Portraying the tudung as a harmless expression of piety and the unfortunate bringer of misplaced suspicion, Alfian Sa’at’s writing reflects with great sensitivity the Malay poet’s refusal, like that of many other Malays, to be rigidly labelled as either extremist or moderate. I see a schoolgirl from a madrasah wearing a tudung… I want to go up to her and hug her, and tell her how her tudung is not just a symbol of modesty, but a symbol of inscrutability. That layer of cloth makes her suspicious to others, it can be used to smuggle in a grenade or an agenda, so she will never get a frontline desk job, she will be expected to hang around with other tudung-wearing women in the university. I think about the fathers who sent their daughters to schools in tudung and reflect on how the media has framed them as shit-stirrers rather than citizens who practised their right to civil disobedience… If I can tell the girl one thing, it is “integration is not assimilation”, or “tolerance is a failure in understanding” even though it is something she will take time to understand.12

In July, Zulfikar left for Australia in the wake of investigations for charges of criminal defamation.13 Apart from a strategy of defining clear-cut binary differences that encourage the majority of Singapore Malays to position themselves in ways favourable to

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the security of the multi-ethnic nation, the government’s strategy has also involved discouraging mainstream Malay-Muslims in Singapore, hailed as moderate and rational, from becoming more rigid, fanatical, and intolerant in their religious and cultural practices. One reason often given for prohibiting the wearing of tudung in schools is that it will discourage school children from interacting and integrating across the ethnic boundaries, making the Malay-Muslim community seem even more exclusive and disengaged from the rest of Singapore. In spite of the strategic differentiations, the public perception is that Malay-Muslims in Singapore are increasingly becoming a closed community deeply protective of its culture, language, lifestyle, and religion. Islam, regarded by the Malays as a necessary aspect of Malay identity, requires believers to worship at a mosque on Fridays (a working day) and to pray five times a day. The religion prohibits the consumption of pork and food that has not been ritually prepared (halal). These practices are wellknown and respected in Singapore; but non-Muslim Singaporeans note how the local criteria for halal food have, in recent years, become so stringent that most Muslims would not eat halal food that has been prepared in kitchens not dedicated to the preparation of halal food, and many will not even eat at the same table as a non-Muslim. The Prime Minister has warned that such cultural inflexibility can severely reduce interaction across ethnic and religious boundaries, with the unfortunate result that Singapore Malay-Muslims will, in these uncertain circumstances, be viewed by other Singaporeans “with disquiet”.14 The strategic category of moderate, rational, and open-minded Singapore Malay-Muslims, differentiated from the extremists and terrorists in and out of Singapore who pretend to be true Muslims, has been asked not only to integrate into mainstream Singapore society, but also to disown and stand up against extremists. A seven-year old Singaporean Islamic website, KampungNet, was revamped and relaunched with the aim of defending the Islamic faith from misconceptions. Its webmaster has asserted that “it’s time members of the mainstream Muslim community make themselves heard, articulate their concerns without having to apologize for the actions of Muslims elsewhere, or being swayed by views from the fringe”. The government has tasked the MalayMuslim leadership to guide the community away from extremism, fanaticism, intolerance, and inflexibility. Malay grassroots leaders and organizations have unequivocally condemned the JI.15 The job of the Malay PAP MPs, though, is somewhat more complicated. They have for long been viewed by the Malay community they represent with some ambivalence. Malay-Muslims have questioned the effectiveness of their MPs and whether they are anything more than a vehicle for the PAP government to co-opt the significant minority MalayMuslim community. However, others in the community recognize that being allied to the PAP government is in the best interests of Malay-Muslims. This is an especially powerful argument in the light of PM Goh’s rallying call for Singapore Muslims to become a model Muslim community of excellence —

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progressive, economically developed, and well-integrated into multi-racial, multireligious Singapore.16 Other than summoning the majority of Singapore Malays to fall in to the rank and file of moderate Muslims and then expecting them to do political battle with the extremist and fringe categories, the government also turned its attention to non-Muslim Singaporeans whose unfounded suspicions and overreaction can lead to mutually reinforcing resentment between non-Muslim and Muslim Singaporeans, with the latter finding it more difficult to gain employment in a predominantly Chinese and recession-hit economy. The strategy has been to give non-Muslim Singaporeans less reason to think that “Muslims are all like that”, and more reason to view inter-communal trust as crucial to national security. If terrorism is a common threat to everyone in Singapore, then the fight against terrorism must be a national, rather than communal, effort.17 Finally, the strategy has involved institution-building, codification of good practices, and mindset shaping to promote inter-ethnic interaction of a deeper, more informed, and more engaged level. First, in the interest of generating and entrenching widespread and generalized inter-communal trust and friendship, Inter-Racial Confidence Circles (IRCCs) have been established in each of the eighty-four electoral constituencies. They now consist of a total of almost 1,000 members who are leaders of racial, religious, social, educational, and business groups. Each ethnic group is well represented in these councils. IRCCs have also encouraged the formation of national-level Harmony Circles at schools and the workplace. There is no one-size-fits-all model for IRCCs and Harmony Circles; what form they take and what activities they organize will depend on the specific needs of their constituents. IRCCs are slated to play the role of “think-tank” for building greater inter-ethnic understanding and confidence. Already there have been several public education activities such as educational visits to places of worship and to the homes of Singaporeans from different ethnic backgrounds. Soon to be launched is a book of nursery rhymes from each ethnic community published in the four official languages. Also proposed are “world religions” lessons in school.18 Secondly, PM Goh has drafted a “Code of Practice” for Singaporeans to debate, refine, and eventually give their consent to. The draft, not intended to be backed by the force of law or to dictate how each religion should be practised, currently reads: We, the citizens of Singapore, acknowledging that we are a secular society; enjoying the freedom to practise our own religions; and recognising that religious harmony is a cornerstone of our peace, progress and prosperity; hereby resolve to practise our religions in a manner that: promotes the cohesion and integration of our society; expands the common space of Singaporeans; encourages mutual tolerance, understanding, respect, confidence and trust; fosters stronger bonds across religious communities; and prevents religion from ever being a source of conflict.19

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The concept of “common space” has been especially dominant in public thinking about Singapore’s multi-ethnicity ever since PM Goh used it in a Parliamentary speech of 1999 in which he described Singapore society as four overlapping circles, each representing one of the four ethnic communities. The overlapping area, the common space where Singaporeans of all ethnic backgrounds interact on equal terms, enjoy equal opportunities, and use the common and neutral English language, must be maximized so that a “Singaporean tribe” (read “nation”) may emerge out of ethnic diversity.20 Eliminating ethnicity in favour of a national identity has been acknowledged as impossible, even undesirable. Expanding the common space must therefore be carefully balanced with religious freedom and a critical understanding of the implications of this freedom. It must be balanced with deep knowledge of, and genuine respect for, each ethno-religious community’s faith, values, cultural practices, and aspirations.21 Thirdly, the strategy to enrich inter-ethnic interaction has involved the shaping of mindsets, largely through media images. The dramatic portrayal in the media of the JI arrests and the events that led to these probably had the effect of raising public commitment to Total Defence. Ministerial speeches aimed to mould public perceptions about ethnic relations were given maximum coverage and analysis on television and the printed news, as were the events organized to promote inter-ethnic understanding and interaction. In interview polls conducted by the Straits Times and Singapore Press Holdings, respondents were found to demonstrate more maturity particularly with respect to blaming not others but themselves for inadequacies in ethnic relations. While these interviews indicated that Singaporeans mostly agreed that it is good to mix with people of different ethnic backgrounds, they also showed that there is still significant indifference about these issues.22 Minister Yaacob Ibrahim has said that he hopes Singaporeans, who are now proud of the country’s various material achievements, will one day be proud of its “race-relations”.23 Remaking the Economy Singapore’s swift and well-publicized efforts to maintain internal and external security were strongly motivated by the need to deal decisively with negative economic consequences arising from the threat of terrorism that had severely reduced global confidence in a region that had before this shown some signs of economic recovery.24 Wary of over-dramatizing the economic consequences of the Bali blasts, most economists would nevertheless agree that the negative impact on the airline, tourism, hotel, and insurance industries has not been insignificant. Nearly all countries in Southeast Asia, including Singapore, were put on the high-risk lists of travel advisories issued by the governments of the United States, the United Kingdom, Australia, and others. More pessimistic economists predict poor economic performance well into 2003, characterized by declining consumer confidence, low levels of domestic and foreign investment, and rising levels of unemployment, and all will be exacerbated by

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a possible war on Iraq that would among other things push up the price of oil.25 In the longer term, however, Southeast Asia as a region does have many economic strengths, and its diverse physical and human resources indicate a still high growth potential, as long as the terrorist threat can be kept under control and the countries of the region can work out an acceptable way of synergistically building on one another’s complementary strengths. While Singapore’s survival and success are intimately linked to the general well-being of its regional neighbours, especially Indonesia and Malaysia, the increasingly more cost-competitive environments offered by these emerging Southeast Asian neighbours have paradoxically become a serious threat to the Republic’s overall competitiveness. For example, the top-rated Port of Singapore Authority has already lost to Johor’s much cheaper Port of Tanjung Pelepas large volumes of the transhipment operations of two of its shipping line customers, Denmark’s Maersk Sealand and Taiwan’s Evergreen Marine Corp.26 The rise of China and its entry into the World Trade Organization (WTO) are opportunities as well as serious concerns. It is exactly with the view to riding out this “perfect economic storm” and emerging even stronger for it that Singapore has pressed on with its campaign to rethink and restructure its economy in very fundamental ways. By taking full advantage of economic crises to implement tough but necessary long-term measures, Singapore is preparing itself to leap out of traditional economic activities where it can no longer compete with its low-cost regional neighbours and into new and high-end areas where comparative advantages can be leveraged by its core competencies. Singapore is also preparing itself to be in a position to profit directly from the growth of China, expected to be phenomenal, and the emerging Southeast Asian markets. To renew Singapore’s competitiveness crucial for continued growth, jobcreation, and wealth-generation, the Economic Review Committee’s (ERC) work of brainstorming ideas among the upper echelon of the public and private sectors, soliciting feedback and suggestions from the economic frontlines, and proposing extensive recommendations to the government went into full swing in 2002.27 Tasked with some hard thinking about remaking an economy that had served the country well in the past but that has been in need of new strategies and fundamental restructuring to not only cope with but also take advantage of new global opportunities and threats, the ERC’s seven Sub-Committees and their respective Working Groups focussed comprehensively on seven very inter-related areas of concern: (1) taxation, the Central Provident Fund system, wages, and land, (2) entrepreneurship and internationalization of domestic companies, (3) enhancing human capital, (4) the manufacturing sector, (5) the service industries, (6) domestic enterprises, and (7) dealing with the impact of economic restructuring. Recommendations to reduce significantly corporate and personal income taxes addressed the immediate concern over cost-competitiveness and Singapore’s ability to continue its long-standing policy of attracting foreign capital for generating growth,

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bringing in technology and know-how, and opening up more, higher-end, and better-paying jobs. These recommendations have also necessitated a staggered increase of 2 per cent in the tax on goods and services. However, there have also been qualitative recommendations and policy changes pitched at the deeper structural and cultural levels, surrounding at least two broad concerns: to develop innovativeness and entrepreneurship, and to turn Singapore into a regional and global services hub. An Innovative and Entrepreneurial Culture Singapore is a country in which state entrepreneurship has delivered a level of affluence. Yet a paternalistic government that has enforced regulations on a vast range of public and private concerns, and provided an impressive infrastructure of public housing, education, and healthcare, has given the people less reason, and perhaps ability, to take risks, experiment, and do things for themselves. Singaporeans have been variously caricatured as overcautious, unimaginative, complacent, and mediocre. Other cultural obstacles to resurrecting an entrepreneurial society include fear and intolerance of failure, a preference for working in large and established organizations, and a lack of successful entrepreneurs who can be upheld as role models. In fact, as Senior Minister Lee Kuan Yew has asserted, the Confucian reverence for scholarship in Singapore may have played a part in lowering the regard for business and commerce. Also, the legacy of a grades-obsessed education system designed to train specialized workers for an industrial economy rather than foster creativity and personal initiative has not been easy to shed.28 One set of recommendations by the ERC was aimed at enhancing human capital in ways that would promote entrepreneurship. Students should be required to take fewer subjects, but be able to choose them from a broader, more varied range. There should be more diversity in the system, allowing for more private schools that specialize in niche areas like the arts, sports, mathematics, or science, and schools offering alternatives to the “O” and “A” level system. Postgraduate research should be encouraged. Students and working executives should be given more hands-on opportunities to develop strong entrepreneurial instincts, to learn about enterprise and business concepts. Continuing education and training should be made more available and attractive to professionals, managers, executives, technicians, and less skilled workers alike. Flow of talent between the public and private sectors should be facilitated, particularly in the context of what has often been criticized as a state monopoly on talent through an extensive system of prestigious university scholarships with legal and moral obligations to serve in the public sector. There should also be more fluid collaborations among enterprises both public and private. A creative infrastructure comprising the arts, culture, sports, and recreation opportunities should be built to produce and sustain a creative environment. Senior Minister Lee Kuan Yew has, uncharacteristically, called for “little Bohemias” to sprout in Singapore where non-mainstream artists can help to

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generate a creative climate that will seep into the mainstream commercial world. PM Goh has also suggested that his government reconsider the law against “bar-top dancing”, linking these kinds of uninhibited activities with creativity, but also making a loud announcement to foreign talent that Singapore is a fun place in which to live and work.29 Academic Richard Florida has argued that any city that meets the needs of the “creative class” — a community of artists and other creative people, a nightlife, diversity, and so on — will also be a magnet for knowledge workers, academics, and entrepreneurs. Other factors that support the development of creative cultural cities include cheap rents, periods of chaos, and wealth disparities, of which only the third can be confidently said of Singapore.30 The recommendations have also focussed on arguments in a long-standing debate on the appropriate role of the government in Singapore’s economy. The government should continue to loosen regulations and unnecessary red tape, adopting more enterprise-friendly approaches instead. It should be more liberal about private sector financing and promote more productive flows of personal capital, of which significant proportions are tied up in the Central Provident Fund and Housing Development Board properties. More controversial though, but certainly not new, have been calls to reconsider the government’s role as state entrepreneur. Government-linked companies (GLCs) make up a complicated web of corporations and subsidiaries in which the government owns a large stake. These cover a remarkably wide range of economic activities and concerns. Some forty GLCs come under parent company Temasek Holdings, responsible for 13 per cent of Singapore’s GDP. It is generally acknowledged that in the earlier phases of Singapore’s economic development when the private sector was weak and uncoordinated, GLCs were crucial for generating jobs and growth, and also for providing essential, large-scale, and critical services that included banking, aviation, telecommunications, port, and public utilities. As the private sector grew in size and confidence, it became increasingly viewed as a sector that could be more sensitive than the state to market trends in innovation and the knowledge-driven economy. Furthermore, government enterprises came to look more unwieldy and lethargic — their management structure often comprising former ministers, top civil servants, or reservist military officers suggested a “cosy corporate culture of patronage”.31 On Labour Day 2002, Ho Ching was appointed to the post of Temasek’s Executive Director. PM Goh and others defended the move as consistent with the need to harness scarce talent, regardless of who they might be or be associated with. Other analysts have argued that it would take someone with no less than Ho Ching’s political clout to shake up the GLCs, a massive task that could include trimming down management and completing large restructuring projects such as the merger of DBS and POSBank that critics have described as clumsy.32 Yet, the very defence of the appointment by PM Goh and others suggested concerns about possible effects on the image of GLCs at the international level.

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The ERC’s recommendations on “government in business” were soon followed by the launch of the new but somewhat conservative Temasek Charter, and both were debated in Parliament. The basic conclusion, overly cautious by most accounts, was that GLCs can and will still play a decisively important role in Singapore’s economy, but this role needs to be rationalized and more clearly defined. In principle, this would mean restricting GLCs to two main types of economic activities: (1) enterprises that manage critical resources, carry out key public policy objectives, and develop new growth engines which may be economically unfeasible for the private sector, and (2) core businesses that show strong potential for becoming globally competitive enterprises, attracting world-class talent but anchored in Singapore. GLCs must operate on sound commercial principles and strategies, in the interest of shareholders including minority shareholders, and under the vigilant gaze of government regulators. GLCs should not diversify into unrelated fields without good reason. They should obey the “Yellow Pages rule” and not try to supply goods and services that are already viably and satisfactorily supplied by the private sector. They should divest non-strategic, domestic companies when they become commercially viable. In absolute terms, both GLCs and non-GLCs need to grow in order to expand the economy as a whole. But in relative terms, the government’s share needs to be kept as small as possible. While all parties would agree in principle that government presence must in this way be reduced, not everyone is as optimistic about whether the private sector is “ready” to fill the space. A competition law will be passed to strengthen the private sector by providing a level playing field and equal opportunities for its enterprises. Such a law should limit the advantages that GLCs deliberately or indirectly enjoy from being associated with the government. Government agencies should be encouraged to further outsource their in-house services. Business ventures overseas could adopt a cluster approach involving real partnership among GLCs, multinational companies, and the small and medium enterprises in the domestic sector. A Regional and Global Services Hub Contributing to about a quarter of Singapore’s GDP, manufacturing remains a key engine of Singapore’s economic growth. Although wages and costs have risen, a manufacturing infrastructure comprising a pro-business and incorrupt government, a growing scientific and technological base, a cosmopolitan society, and a clean, safe, and increasingly stimulating living environment continues to offer prospects for developing manufacturing as the main pillar of the economy. To stay ahead of the competition, the ERC recommended that Singapore move decisively into potential growth areas such as the biomedical sciences, industrial information technology, microelectromechanical systems, nanotechnology, and photonics. The concept of Singapore as a global city was mooted in the early 1970s, when foreign capital and expertise were warmly invited not only to enrich but

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to fuel the economy. As population growth rates declined and Singaporeans left in larger numbers for greener pastures, the government began in the mid-1990s to make even louder calls for foreign talent to widen the limited Singaporean pool of human resources, providing the soft infrastructure that would make Singapore an attractive place in which to live and work. Since the mid-1980s, Singapore has tried to develop a second economic wing, encouraging local enterprises to expand regionally and even globally. The task was to identify and nurture local businesses that have the potential to become Singaporean multinational corporations (MNCs). The ERC’s recommendations, following this line of thinking, have focussed on turning Singapore into a regional and global services hub, specifically in the fields of information and communications technology, education, healthcare, tourism, law, finance, logistics, and the creative industries. To become an education hub, for example, Singapore should develop its tertiary education sector, private commercial and specialty schools, and preparatory and boarding schools to attract full-fee paying international students. Singapore should also work towards becoming a regional centre for corporate and executive training. To support these developments, e-Learning and educational testing and assessment services should also be strengthened. A most exciting development has been Singapore’s efforts to build up a creative economy, within which arts and culture, design, and media have been highlighted by the ERC. This creative cluster is seen as an economy-wide enabler that would help to promote innovation. This would also spin-off other economic activities in the tourism, hospitality, retail, and other industries.33 In October 2002, the long-awaited Esplanade — Theatres on the Bay, a cultural complex costing over S$600 million, opened with great pomp, promising to “entertain, engage, educate, and inspire” Singaporeans of all backgrounds, but also a larger international audience who would be attracted by what the performing arts centre can offer at the highest global standards.34 Another development is “One-North” which is a mix of commercial, residential, and recreational environments aimed at attracting corporations, venture capitalists, and knowledge-workers focusing on the biomedical sciences, infocomm technology, media industries, and the interconnections among these. Its colourful rhetoric is revealing of the new economic mindset that Singapore is desperately trying to instil in its people: Imagine an environment bounded only by imagination itself. Where you can live, work and be inspired by leading scientists, researchers and technopreneurs from around the world. Where groundbreaking ideas are born from a stroll in the park and conventions challenged over coffee at a sidewalk cafe. Where anything is possible. Welcome to one-north — a vibrant place and a lifestyle choice for the most creative minds of the new economy. A small piece of Singapore with a big part to play in shaping the future.35

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Beyond the Economy: Remaking Singapore While processes of public consultation expanded in Singapore’s economic sphere, a parallel development could be observed in the social, cultural, and political spheres. Complementing the activities of the ERC were the many public forums, seminars, conferences, and communications over television, print, and electronic media organized by the Remaking Singapore Committee (RSC) to reach out to as many Singaporeans as possible, particularly from the post-independence generations, in an effort to understand their goals and aspirations, and new ways of achieving them.36 Where the commonplace expression of Singaporeans’ aspirations had been an obsession with the “5 Cs” — Career, Condominium, Club, Credit card, and Car — the five sub-committees of the RSC were each tasked with thinking about going “beyond” the 5 Cs. So the “Beyond Careers” Sub-Committee has been considering wider or alternative definitions of success that can better serve Singapore in the twenty-first century. It has been thinking about how the education system can accommodate and develop a wider range of talent and aspirations, especially in the arts and sports, building up a learning environment that fosters an innovative and entrepreneurial outlook among students, teachers, and administrators. It has been devising strategies for transforming the way that societal norms and attitudes smile on those who attain material success in conventional salaried careers, but frown on those in less lucrative careers in sports, the arts, research, and social work, as well as on entrepreneurs whose risk-taking behaviour, although potentially very profitable, often leads to financial losses, viewed narrowly as abject failure. The “Beyond Condo” Sub-Committee has been considering ways to strengthen ties within and among families, friendship circles, and communities. It has been thinking about ways to generate active citizenship, and to build national identity and a sense of emotional rootedness through the creation, preservation, and promotion of familiar national icons, symbols, landmarks, and places. It has also been thinking about raising the quality of life by promoting less regulated avenues for personal expression, and providing a richer array of lifestyle choices in the fields of culture and the arts, recreation, and so on. The “Beyond Club” Sub-Committee has been focusing on social cleavages brought about by differences in wealth and income, skills and technology, gender, and perhaps most importantly ethnicity and religion. The sub-committee has been exploring ethnic relations and national integration in the education system, the workplace, public housing, and the media. The “Beyond Credit Card” Sub-Committee has been thinking about how Singaporeans can become less narrowly materialistic, and more charitable and civic-conscious. It has been considering ways of increasing the social mobility of lower-income families and structurally alienated groups such as the disabled, looking after their well-being, and providing adequate safety nets without compromising competitiveness and self-reliance. It has also been thinking about ways of

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fostering the less materialistic concerns about self-expression and public participation, all guided by a sense of personal responsibility rather than external constraints. Finally, the “Beyond Cars” Sub-Committee has been looking at Singapore’s physical environment and the challenge of designing and building a city-state with character and identity, supportive of culture, community, recreation, the natural environment, and its built heritage. The sub-committee has also discussed ways of evolving a notion of Singapore that is rooted to but not limited by its geographical space. Dialogue sessions, focus group discussions, feedback sessions, and conferences have been organized by and for state-sponsored constituency grassroots organizations, formal feedback groups, ethnic self-help groups, voluntary welfare organizations, educational institutions, and so on. Formal proposals with very specific and mostly substantial and well-researched recommendations were submitted by various organizations. The Institute of Policy Studies, a local think-tank, submitted papers covering many of the concerns raised by the RSC. The Singapore International Foundation, an organization whose objectives include fostering a Singapore community at the global level, collated twelve sets of recommendations from overseas Singapore clubs, business associations, and student associations in various countries. More specific interests were represented by groups like the Association of Women for Action and Research, a non-governmental feminist organization in Singapore, whose submissions, accompanied by the results of a survey it had conducted, aimed to transform the republic’s anachronistically patriarchal institutions and practices. The Singapore Association of Social Workers submitted recommendations for strengthening the social services sector. The final reports by the RSC are expected to be submitted in early 2003. How should these visible examples of increased public consultation in the economic and non-economic spheres be interpreted? Perhaps they mark a coming of age in Singapore’s gradual and controlled, but inevitable, development towards more democratic, even “liberal”, adulthood. After all, newspaper articles and letters published in the forum page have become more overtly critical. In December 2001, well-organized public pressure had quite remarkably led the government to postpone its decision to develop Tanjung Chek Jawa for military purposes. It was remarkable because the usually economistic government seemed to have given in to public concerns, of a post-industrial kind, to preserve mud-flats on an off-shore island that are home to some rare marine life.37 In Parliament, the backbenchers appeared to be generating more interesting and robust debate. By announcing in March 2002 that it would lift the party whip automatically on matters of personal conscience and on a case-by-case basis for other issues, the PAP, in the confidence of a resounding electoral victory in November 2001, has given the cue to its parliamentarians to examine more critically the legislation, government policies, and issues that come up before them.38 Of great significance was the parliamentary debate in July

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sparked by a motion drawn up by former Speaker of the House Tan Soo Khoon to review the Public Transport Council’s (PTC) decision, supported by the government, to increase public transport fares. Other PAP MPs, also concerned about the pressure this would place on ordinary Singaporeans already trying to cope in an economic recession, launched into vigorous arguments against the decision. The fare hike has, after all, been a dominant issue in many of the Remaking Singapore dialogue and feedback sessions. In spite of these protests in and out of Parliament, the government decided to abide by the decision of the PTC. Remarkably, Tan formally apologized to Deputy Prime Minister Lee Hsien Loong for making statements during the debate that some MPs have considered to be potentially libellous. PM Goh, in a closed-door post-mortem discussion of the debates, spelt out the “out-of-bound” markers for PAP parliamentarians who, although expected to be more lively and critical debaters, must not jeopardize the integrity of the PAP and enhance personal popularity by playing to the gallery.39 The optimists view these cautious changes in the intra-PAP debates as the start of a richer and more democratic public life. The sceptics immediately see in this a dramatic strategy to further reduce the need for checks and balances in the form of more opposition members in Parliament. Consultation allows the government to obtain more ideas from the frontlines, and this is becoming more important as Singapore tries to steer a course in a much more slippery and interconnected world where the PAP government probably realizes and acknowledges that it does not have all the answers. In fact, consultation may also help to diffuse the blame for any major policy mistakes, a means of averting a crisis of political legitimacy in a less predictable or controllable world. But consultation does not require the government to engage in equal dialogue with the people, not even with the “experts”. In fact, many Singaporeans remain sceptical about large-scale consultative exercises like Remaking Singapore because they feel that their involvement merely provides passive feedback and a reading of public reactions after decisions have already been made, at least in principle, according to an agenda set solely by the government. Suggestions, according to this view, have simply been collated bureaucratically, and if accepted, have rarely been acknowledged. It is also not easy for conscientious Singaporeans to speak up, expose themselves to public humiliation, and have their national loyalty called into question.40 Although it is often argued that Singaporeans are becoming more educated, articulate, affluent, and globally exposed, there is an underlying sense, one that many Singaporeans themselves share that the people as a whole are generally not yet ready for more expansive democratic developments where citizens would engage in dialogue with the government on equal terms. This outlook makes it generally acceptable to fill the RSC and ERC with Singaporeans who are qualified “experts” in their fields or part of the establishment — rendering the role of ordinary Singaporeans, the broader stakeholders, to a combination of spectator, linesman, and cheerleader for the national team.

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These “remaking” exercises for the economy and the nation more generally, though consultative in a somewhat limited way, are nevertheless important as platforms for a “visionary” politics. If nothing else, they simulate a “national” effort where technically this would be impossible. They decompress latent pressures for radical democratization, generate a widespread sense of stake in and belonging to the country, and give the new generation of PAP leaders a chance to inspire the people with charisma and high-mindedness instead of the technocratic expertise that had bought them the party ticket. This might explain the time and effort spent in Parliament and in general public discourse debating such intangible notions as the “Singapore Cause”, the willingness of future generations of Singaporeans to die for their country, and the importance of being a stayer and not a quitter.41 The national life cycle of Singapore must be sustained by a perpetual sense of crisis that leads not to despair, but to collective hope and self-renewal.

NOTES 1. For example, Prime Minister Goh Chok Tong has said this in Parliament on 5 May 1999. 2. “The Case Against Jemaah Islamiah”, Straits Times, 31 May 2002; Chris Foley, “Finger of Southeast Asian Terrorism Points to Indonesian Cleric”, Agence France-Presse, 18 September 2002. 3. Amy Tan, “Singapore Says Militant Group Has up to 80 Members”, Reuters News, 24 September 2002; “Coping With the Terror Threat in Singapore”, Straits Times, 15 October 2002. 4. Chris McCall, “Radical Predicts America’s Downfall”, Courier-Mail, 8 February 2002; Joe Cochrane, “I Will Fight the Best I Can” and “Dazed and Confused: If Megawati Doesn’t Face Her Fear of Islamic Radicals Soon, Many More May Pay the Price with their Lives”, Newsweek International, 28 October 2002. 5. “15 Suspected Terrorists Arrested in Singapore”, Agence France-Presse, 5 January 2002. 6. “National Security Secretariat Set Up”, Singapore Bulletin 30, no. 2 (2002): 4; “Singapore PM’s Visit”, Bangkok Post, 20 February 2002. 7. Lily Zubaidah Rahim, The Singapore Dilemma: The Political and Educational Marginality of the Malay Community (Kuala Lumpur: Oxford University Press, 1998), p. 52. 8. Ibid. 9. “Muslims Urged to Correct Misconceptions About Islam”, Straits Times, 23 February 2002; “Coping With the Terror Threat in Singapore”, Straits Times, 15 October 2002; Lydia Lim and Sue-Ann Chia, “Don’t Put Us on the Defensive Again — Muslims”, Straits Times, 18 September 2002. 10. “The Fateha Controversy” and “The Tudung Tussle”, Singapore Bulletin, February 2002; “Common Uniform Policy Strengthens National Unity”, Singapore Bulletin, March 2002. 11. “Singapore Leader Says Local Muslims Becoming ‘Rigid’ in Practice of Islam”, Associated Press Newswires, 18 August 2002. 12. Alfian Sa’at, “The Racist’s Apology”, 27 March 2002, available at , (20 November 2002). 13. He had written a series of articles published on Fateha’s website criticising the appointment of Ho Ching, the daughter-in-law of Senior Minister Lee Kuan Yew and wife of the future Prime Minister, as Executive Director of Temasek Holdings,

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14. 15.

16. 17.

18.

19. 20. 21.

22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

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the main business arm of the government — presenting it as a case of nepotism. In other articles, Zulfikar had also criticized Yaacob Ibrahim, Muslim Affairs Minister, for being a hypocrite and a PAP lackey. “Coping with the Terror Threat in Singapore”, Straits Times, 15 October 2002. “Security, Harmony the Main Worry Now”, Singapore Bulletin 30, no. 3 (2002): 5–6; “Singapore Website Aims to Dispel Misconceptions About Islam”, Agence FrancePresse, 6 August 2002; “Speak up against Muslim Extremism”, Straits Times, 19 August 2002; Wong Sher Maine and Chua Minyi, “Condemn JI Terrorists — Yaacob”, Straits Times, 22 September 2002; “Committee to Push for Closer Interracial Ties”, Straits Times, 27 September 2002. “Speak up against Muslim Extremism”, Straits Times, 19 August 2002. “Coping With the Terror Threat in Singapore”, Straits Times, 15 October 2002; “Condemn JI Terrorists — Yaacob”, Straits Times, 22 September 2002; Lydia Lim and Sue-Ann Chia, “Don’t Put Us On the Defensive Again — Muslims”; “Don’t Let Actions of a Few Destroy the Social Fabric”, Straits Times, 22 September 2002. “New Push To Strengthen Racial Ties”, Singapore Bulletin 30, no. 2 (2002): 4; “Over 900 Members in 84 IRCCs Islandwide So Far”, ChannelNews Asia, 1 September 2002; “Mosques Open Doors to Non-Muslims”, Singapore Bulletin 30, no. 3 (2002): 18; “At Home With Racial Harmony”, Singapore Bulletin 30, no. 2 (2002): 4; “Out Soon — Nursery Rhymes in Local Tongues”, Straits Times, 15 July 2002; “Committee to Push for Closer Inter-Racial Ties”, Straits Times, 27 September 2002. Chua Lee Hoong, “Code Red? Code Green? Code Orange!”, Straits Times, 16 October 2002. Goh Chok Tong, speech in the Singapore 21 Debate in Parliament, 5 May 1999. Hussin Mutalib, “‘Yes’ to Religious Code but How About a ‘Peace March’ First?”, Straits Times, 16 October 2002; Alicia Yeo, Shahida Ariff, and Suhaila Sulaiman, “Don’t End Up Preaching, Say Religious Leaders”, Straits Times, 26 September 2002. “Getting Along, Mostly”, Straits Times, 9 August 2002. “Singaporeans Should be Proud of Race Relations — Yaacob Ibrahim”, ChannelNewsAsia, 19 June 2002. “Singapore PM’s Visit”, Bangkok Post, 20 February 2002. P.Y. Chin, “Bail Blast Hits Southeast Asian Stock Markets and Beyond”, New Sunday Times, 20 October 2002; Audrey Tan, “Jobless Rate Likely to Top 5% by Year End — Economists”, Business Times Singapore, 23 October 2002. Rebecca Lee, “Evergreen Inks PSA Deal to Keep Some Services Here”, Straits Times, 7 September 2002. Economic Review Committee website, available at (20 November 2002) contains reports submitted by various Sub-Committees and government responses. “Thrust of the ERC’s Ultimate Conclusions”, Institutional Investor, May 2002; Kevin Hamlin, “Remaking Singapore”, Institutional Investor, May 2002. Sonny Yap, “Can Bohemians and Heartlanders Co-exist?”, Straits Times, 2 March 2002; Goh Chok Tong, “National Day Rally 2002”, Prime Minister’s speech delivered on 18 August 2002. Adam Piore, “How to Build a Creative City”, Newsweek, 2 September 2002. Michael Shari, “Can Ho Ching Fix Singapore Inc.?”, Business Week, 24 June 2002. Michael Shari, “Can Ho Ching Fix Singapore Inc.?” and “Q&A: Singapore’s Premier on the Power of the Lee Family”, BusinessWeek, 24 June 2002. Ooi Giok Ling and Chow Kit Boey, “The Economics of the Arts”, in inform.educate.entertain@sg: Arts & Media in Singapore, 2nd Ed. (Singapore: MITA, 2000). Esplanade — Theatres on the Bay website, available at (20 November 2002).

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35. One-north website, available at (20 November 2002). 36. Remaking Singapore website, available at (20 November 2002) contains, among other things, press releases, records of discussions, and proposals received. 37. Tan Tarn How, “Will It Be a Real Remake or a Mere Makeover?”, Straits Times, 12 January 2002; Laurel Teo, “Giving Feedback — Stay With it or Quit?”, Straits Times, 7 September 2002. 38. Chuang Peck Ming, “PAP Whip to be Lifted for All MPs at Times”, Straits Times, 21 March 2002. 39. M. Nirmala, “Insight — What Really Happened at Fare Hike Debate”, Straits Times, 24 August 2002. 40. Susan Long, “Insight — What Does Recent Political Sound and Fury Signify?”, Business Times Singapore, 27 July 2002; Tan Tarn How, “Remaking Public Debate”, Straits Times, 9 March 2002. 41. “If There’s a War, Why Should We Fight?”, Straits Times, 5 April 2002; Asad Latif, “Why Is Singapore Around? BeCause…”, Straits Times, 6 April 2002; Goh Chok Tong, “National Day Rally 2002”.

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Southeast Asian Affairs 2003, pp. 259–74

SINGAPORE’S TROUBLED RELATIONS WITH MALAYSIA A Singapore Perspective

Chang Li Lin

The bilateral ties between Singapore and Malaysia in 2002 were marked by high-profile disputes over many issues, in particular over water. Other issues included the reaction towards land reclamation in Singapore, the management of the lighthouse on Pulau Pisang by Singapore, the banning of the use of the tudung in Singapore schools, and Singapore’s bilateral Free Trade Agreements (FTAs) with other countries. These disputes demonstrate that the relations between Singapore and Malaysia continue to be driven by fundamentally competitive forces which show little sign of dissipating in the foreseeable future. Shared key interests such as economic interlinkages as well as the fight against terrorism may have mitigated the intensity of the differences to a certain extent but the overall tone remains conflictual. The outlook is not necessarily bleak. There remains a potential for bilateral ties to be brought to a modus vivendi in which both sides, while acknowledging deeply differing interests, nevertheless are cognizant of the detrimental effects of over-intense competition. Singapore and Malaysia can look for ways to work more closely according to the principle that harmonious ties are likely to lead to better economic and security conditions for both countries.

THE ISSUES AND THE DRIVING FACTORS Water Perhaps no issue has captured the attention more than that of water. The crux of the dispute is this: Malaysia has argued that it has a right to review the price of raw water under the current agreements while the Singapore Government has maintained that the right of review lapsed in 1986 and 1987 when Malaysia chose not to undertake the review. To understand how the discussions progressed in 2002, it is helpful to trace the key events in the negotiation process (see Table 1).

CHANG LI LIN is a Research Associate at the Institute of Policy Studies, Singapore. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

PM Goh Chok Tong agrees with PM Dr Mahathir Mohamad that outstanding bilateral issues will be discussed as a package.

Singapore and Malaysia conduct two Ministerial Meetings and three Senior Officials’ Meetings.

SM Lee Kuan Yew visits Kuala Lumpur for discussion on bilateral issues.

SM Lee visits Kuala Lumpur again for discussion on bilateral issues.

SM Lee writes to Dr Mahathir setting out the areas of agreement and issues to be resolved as part of a package following his visit to Kuala Lumpur. On water: In-principle agreement on the price of 60 sen per 1,000 gallons for future raw water, to be reviewed every five years for inflation, for 100 years after the expiry of the 1962 Agreement in 2061. Although not legally obliged to do so, Singapore offers to pay 45 sen per 1,000 gallons for raw water purchased under the current 1961/62 agreements.

Dr Mahathir replies to SM Lee indicating among other things that Malaysia might end the KTM train service in Johor and is reconsidering the proposal to build an undersea rail tunnel linking Johor and Singapore and a bridge to replace the Causeway.

SM Lee replies to Dr Mahathir seeking clarification of the proposal as it departs from discussion held earlier in Kuala Lumpur, and requests Malaysia to set out its positions on outstanding issues, so as to establish a clear framework for a meeting between the Foreign Ministers.

Dr Mahathir responds with Malaysia’s latest proposals including the price of water. The new and different proposals made had not been discussed previously. The package of issues in this letter covers water, railway, a proposed bridge to replace the Causeway, Customs, Immigration and Quarantine (CIQ), Central Provident Fund (CPF), and airspace.

SM Lee asks for some time to study the new proposals and their implications.

December 1998

1999

August 2000

August 2001

September 2001

18 October 2001

10 December 2001

4 March 2002

11 March 2002

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PM Goh writes to Dr Mahathir and sets out Singapore’s responses indicating that the next step would be for the Foreign Ministers and officials to meet in Kuala Lumpur to discuss the details. The package of issues to be discussed are as indicated in Dr Mahathir’s reply dated 4 March.

First Ministerial Meeting (Kuala Lumpur) — Foreign Ministers Malaysia proposes a price formula and indicates that they are considering benchmarking the price, among other things, against the China–Hong Kong model and other models. On water: Different from the in-principle agreement reached in September 2001, Malaysia now proposes that the price of 60 sen per 1,000 gallons for 2002 to 2007 will be backdated to 1986 and 1987, and RM3 from 2007 to 2011. Malaysia informs Singapore of its intent to invoke the price review clauses of the 1961/62 agreements and wants a supplementary agreement to reflect this. Singapore states that it is willing to consider Malaysia’s request to invoke the price review clauses of the 1961/62 Agreements on condition that it is discussed as part of the package, but Singapore does not accept the proposal for a new price if it means renegotiating and amending existing Water Agreements. Malaysia informs Singapore that a supplementary agreement is no longer sought and that instead, they would have recourse to the price review clauses under the two agreements and would do so consistent with the provisions of the agreements.

Singapore launches NEWater.

Second Ministerial Meeting (Singapore) — Foreign Ministers Malaysia wants to delink the proposed bridge to replace the Causeway from the package. On water: Malaysia presents its formula for pricing current water based on Singapore’s peg price formula meant for future water. Singapore asks for the legal basis within the Agreements for the new price and recourse to price review. Malaysia does not give a response. Plans for senior officials to meet on 16–17 October are to discuss water only.

Dr Mahathir writes to PM Goh and informs him that the package approach is now discontinued.

PM Goh meets with Dr Mahathir in Kuala Lumpur. Dr Mahathir indicates that Malaysia wants to decouple the water issue. PM Goh explains that if water is removed from package, Singapore would have less leeway to make concessions.

1–2 July 2002

11 July 2002

2–3 September 2002

7 October 2002

8 October 2002

(continued)

11 April 2002

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PM Goh replies to Dr Mahathir indicating that since the decision has been made by Malaysia to delink the water issue from the package, the package is now off the table.

Senior Officials’ Meeting (Johor Baru) Meeting is held although the package deal is now off. On water: Malaysia takes position that the water issue involves only the price revision of raw water. Future water can be discussed in 2059, two years before the second Agreement expires. Malaysia presents the same pricing formula as at the Second Ministerial Meeting. Singapore argues that even if it does consider a price review, the basis for such a move must be demonstrated in the expressed provisions or factors listed in the review clauses of the 1961 and 1962 water agreements. Malaysia does not provide justification for its position.

Malaysia decides to stop negotiations with Singapore and plans to seek legal recourse for a price review of water supplied to Singapore. Arbitration through the Permanent Court of Arbitration (PCA) at the Hague is identified as a possibility.

Malaysian Foreign Minister Syed Hamid Albar announces that Malaysia will set a date to sign an agreement with Singapore to refer its claim on Pedra Branca to the International Court of Justice (ICJ).

14 October 2002

16–17 October 2002

30 November 2002

30 December 2002

SOURCES: Parliamentary Debates Singapore Official Reports 74, no. 7, 3 May 2002, and 75, no. 10, 31 October 2002. Available at , “Malaysia Turns to Court in Water Row with Singapore”. Agence France Press, 30 November 2002, , and Brendan Pereira, “KL to Give Date for Referral Deal”, Straits Times, 30 December 2002.

PM Goh receives the letter dated 7 October from Dr Mahathir.

(continued)

10 October 2002

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Why is Malaysia only seeking a price review now? In 1986, Malaysia did not press for a review because it was felt that the increase in the price of raw water sold to Singapore would translate into a price increase in treated water sold to Johor. It was a matter of conscious policy.1 Now, Malaysia felt that Singapore had “profiteered” from the current agreements. It wanted to fix a new water price and “get back the money they lost”.2 There are currently two agreements between Singapore and Malaysia regarding the supply of water. The 1961 Tebrau and Scudai Water Agreement that allows Singapore to draw up to 80 million gallons a day (mgd) expires in 2011. The 1962 Johor River Water Agreement allows Singapore to draw up to 250 mgd and will run out in 2061. Under the 1961 pact, Singapore pays 3 sen for every 1,000 gallons while Johor pays 50 sen for the same volume of filtered water. The price differential has prompted charges from numerous Malaysian politicians that Singapore is profiteering from the deal. Malaysia has also cited the domestic consumption needs of Johor as another reason for review. In the discussion in Malaysia both by politicians and in the press, the price difference between 3 sen and 50 sen has been highlighted. There has been little information provided, however, regarding the costs to Singapore in treating the water at RM2.40 per 1,000 gallons of water, nor about Singapore selling the treated water to Johor at only 50 sen per 1,000 gallons. There is also little mention of the fact that Singapore is currently absorbing the cost difference in the treated water that is sold to Johor. Johor in turn sells the treated water it has purchased from Singapore to its consumers at RM3.95 per 1,000 gallons. Instead, Malaysia has asked for twenty times as much as the water currently costs. Singapore has offered 45 sen per 1,000 gallons but Malaysia would like to raise the price to 60 sen per 1,000 gallons between now and 2007, and that this price should be applied retroactively to the two agreements. From 2007 to 2011, it will raise the rate again to RM3. Malaysian Prime Minister Dr Mahathir Mohamad said, “It is ridiculous to sell water at 3 sen per 1,000 gallons when Hong Kong is buying water from mainland China at 8 ringgit per 1,000 gallons”.3 Singapore has maintained that it is not obliged to accept Malaysia’s request for a review in water price; there is no legal basis4 within the agreement for Malaysia to review the price now, nor to apply a new price retroactively. However, as a concession to Malaysia, Singapore had indicated that there was a possibility of reviewing the water price if all the issues were discussed as part of the bilateral package. Reducing Dependency The launch of NEWater (reclaimed water) in Singapore marked a significant step in Singapore’s efforts to reduce its dependency on Malaysia for water.5 It was anticipated that by becoming increasingly self-sufficient, it would move the water issue from being viewed as a security problem to financial considerations. It was suggested that this shift in the approach to water issues will “provide the impetus for putting an end to an enemy-producing security discourse”.6 This

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bodes well for Singapore in the longer term as it would reduce the significance of water on the bilateral agenda. Responses from Malaysia have been mixed towards this new development. “The sooner you have the best means of being self-sufficient in water, the better”, said former Malaysian Deputy Prime Minister Tan Sri Musa Hitam. He felt that the more self-reliant Singapore is in terms of water, the better this will be for Malaysia as it needed the water too. There are those such as Tan Sri Mohamed Rahmat, Secretary-General of Barisan Nasional (BN), who feel that the sale of water to Singapore is more than just a commercial deal because it defines Malaysia’s special relationship with Singapore. With the discussions fixated on the point of finding a new price and applying it retroactively, as opposed to dealing with future supply, NEWater did not help in moving the bilateral negotiations forward. Current levels of water reclamation indicate that Singapore would eventually have enough reclaimed water to replace all the water supplied by Malaysia under the 1961 agreement which expires in 2011.7 However, after the expiry of the second accord in 2061, Singapore is still prepared to buy some water from Malaysia. The price that Singapore is willing to pay for Malaysian water must be less than what it costs for Singapore to make NEWater.8 Singapore has proposed that the price of any treated water that it buys from Malaysia postexpiration of agreements be pegged to an agreed percentage of the cost of NEWater. “Such a formula will withstand the test of time and prevent constant disputes over the price of water”, said Minister Jayakumar in Parliament. The Singapore perspective is based on a premise that its sovereignty must be upheld at all times. To that end, Singapore takes a very serious view towards any renegotiation of existing water agreements, especially when these legally binding agreements have been guaranteed by the governments of Singapore and Malaysia under the 1965 Separation Agreement. The Separation Agreement is fundamental to Singapore’s existence as an independent nation and has been registered at the United Nations.9 “So, any attempt to repudiate the guarantees set out in the Separation Agreement, any attempt to vary the terms of the Water Agreements without the express(sic)ed consent of both governments, will be a serious breach of the Separation Agreement”, said Minister Jayakumar in Parliament this October. The Singapore Government sees a concession along these lines on the water issue as setting an extremely harmful precedent, not only in bilateral relations, but in its general conduct of foreign relations with other countries. However, taking note of the overall situation and interest in resolving the bilateral issues, Singapore had expressed that it was willing to consider alternatives based on political considerations rather than legal obligation. Malaysia’s current approach is pegged to seeking a review of the prices under the current agreement and only to move on to other issues after agreement is sought. Singapore, on the other hand is taking a less watercentric approach. As noted, NEWater has not helped to move the discussions

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forward. There did not seem to be much hope at the close of 2002 for a satisfactory and amiable solution to the water issue in the near term. Economic Competition Logistics At the time of Singapore’s separation from Malaysia, the then Malaysian Prime Minister Tunku Abdul Rahman did not expect Singapore to succeed and had “tried to use three levers to impose his will on Singapore: the military, the economy and water”.10 The current attempt to reduce the volume of Malaysian goods that are being transhipped through Singapore can be seen as an extension of the economic lever. Malaysia has embarked on an intensive effort to rapidly develop its southern gateway in Johor, including improving connectivity to its ports by rail and air. The competition in the logistic services heated up considerably when the privatized Port of Tanjung Pelapas (PTP) successfully convinced two key Singapore port users to relocate. The concern among analysts is that of a ripple effect. Now that PTP has managed to obtain a critical mass in a short time, this would allow for improved economies of scale, and offer the proven experience in port operations of its first partner, Danish shipping giant Maersk Sealand’s, thus boosting significantly the chances of other lines following Maersk. Furthermore, savings on cost for the users of the PTP may translate into lower prices thereby forcing the competitors of PTP clients to consider changing hubs so as to enjoy the cost savings too. Malaysia’s confidence was boosted when it convinced Maersk to shift its transhipment/hub operations from Singapore to PTP in August 2000. The shift was believed to be the biggest single move in the port industry in Southeast Asia, and it will guarantee PTP an annual volume of 2 million twenty-foot equivalent units (TEUs) in 2001, as well as serve as a catalyst to attract other major carriers. Subsequently, the Malaysians also managed to attract Taiwan’s Evergreen, another user of the Singapore port managed by PSA Corporation, to PTP. In the medium term, the size of Malaysia’s port business does not pose a major challenge to Singapore. PSA has been consistently voted the best container terminal operator in Asia for thirteen years with more than 250 shipping lines calling at the port. It has a large critical base of over 15 million TEUs per annum.11 To speed up the growth of the maritime service sector, the Maritime Port Authority (MPA) of Singapore set up a $80 million fund for this purpose. The Singapore government also released a package of incentives to boost Changi Airport’s hub status. The $210 million boost for Changi includes a 15 per cent rebate in aircraft landing fees. Furthermore, though PTP is understandably upbeat about its future, people have warned that “knowing what is needed and delivering it consistently over a long period are two quite different matters. And in this regard, Singapore is well ahead”.12

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In addition, the challenge from Malaysia to Singapore as a transport hub could be considered as rhetoric in preparation for a general election in Malaysia. “It’s a clarion call that never fails to draw: Malaysia boleh — Singapore tak boleh!”13 Nevertheless, the blueprint is a compelling one. When Malaysia eventually implements its plans fully, it is likely that Singapore would have a run for its money. There are already longer term plans to make PTP part of a larger network which would allow it to be connected to Thailand, and beyond, to China. KTM Bhd, Malaysia’s state railway, is planning to develop an east coast rail land bridge from PTP to Bangkok, Thailand. In addition, there is already a land bridge service between Port Klang and Bangkok. Eventually, the ports in southern Malaysia will enable Dr Mahathir to fulfil his dream of the Trans-Asia Railway, a proposed 5,513-kilometre rail-line that will link Singapore, Malaysia, Thailand, Cambodia, Burma, Laos, Vietnam, and Kunming. It will not be too difficult to imagine a starting point in Johor instead of Singapore.14 Malaysia’s determination to develop its southern ports can also be seen in its doggedness in ensuring that nothing is in their way. To increase the likelihood of success of its other port in Pasir Gudang, Malaysia was willing to renege on a prior in-principle agreement between Singapore and Malaysia to build a suspension bridge to replace the present Causeway by 2007. In another instance of not adhering to prior agreement, Dr Mahathir was reported to have said that Malaysia could go ahead and redevelop the bridge with or without Singapore’s agreement, citing the reason that the cost of building the suspension bridge was too expensive. “It does not involve Singapore. It is ours. We are implementing it on the Malaysian side. No need to seek permission”, said Dr Mahathir.15 Land Reclamation Malaysia has sent three protest notes16 over Singapore’s land reclamation activities off Pulau Tekong and Tuas.17 The land reclamation was part of Singapore’s ongoing effort to create more land to meet its needs. Malaysia was concerned that Singapore’s land reclamation near Pulau Tekong would reduce the width of the Straits of Johor and cause larger ships to turn away from the port at Pasir Gudang thereby limiting the competitiveness of the port vis-à-vis Singapore. The reclamation works at Tuas was also perceived as affecting the shipping lane to the PTP. Claims were also made that the reclamation works caused interference with the movement of Malaysian naval ships and the loss of livelihood of Malaysian fishermen who operated in that area. The fishermen had claimed that the dredging barges had frightened the fish away from the area, thereby affecting their livelihood.18 Dr Mahathir was reported to have conceded that on this particular issue Singapore had a right to expand within its own territory. Nevertheless, he felt that Singapore needed to take into account the impact on Malaysia’s shipping.

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Other Elements of Competition The prevailing regional economic conditions suggest that Singapore will likely face tough competition from Malaysia in other sectors too. The model for development in Southeast Asia used to be based on the “flying geese” with Japan as the leader of the pack, while other newly industrializing countries with their emerging economies took over the lower end of the production as the leaders progressed further. With technological advances and globalization, the pattern has changed to that of “leap-frogging” each other. In that respect, Malaysia is catching up19 and competing in areas which Singapore had established a lead. Suffice to say an accelerated approach to economic success could be through emulating what your competitors are doing successfully. Malaysia’s about-turn in the use of FTA is an instance of this. After months of apprehension and public opposition over Singapore’s FTA policy, Malaysia said in August 2002 that it had no problems with such deals so long as the rest of the ASEAN members were offered the same benefits. For its part, Singapore had made it very clear that the FTA agreements did not undermine the ASEAN spirit nor was it a backdoor into the ASEAN Free Trade Area (AFTA).20 The stiff competition in the port services and possibly the air services are future portents. Already there are signs of emerging competition in the areas of information and communications technology (ICT), tourism, education, and provision of health services. Unless new areas of economic development are found, there is likely to be more head-on competition in the old areas.21 The Malay Issue Wearing the Tudung The tudung is the headscarf that Muslim girls wear on attaining puberty to protect their modesty. The issue came to the fore when the parents of four Muslim schoolgirls in Singapore wanted their daughters to wear their tudung to school. In the interest of social cohesion and racial integration, the Singapore Government decided to bar school children from wearing the tudung in national schools. It was felt that if the Muslims were allowed to wear their headscarves in the school, demands by Muslims for more concessions might follow. Some Malaysian politicians and Islamic groups criticized the Singapore Government and expressed concerns that the move would lead to Malays being marginalized.22 However, the Malaysian Government itself did not comment formally on this issue. The Malaysian reaction could be interpreted as being driven by two factors. First, Malaysian domestic politics, in particular, the tussle between the United Malays National Organisation (UMNO) and Parti Islam SeMalaysia (PAS) for their right to represent the interests of Muslims.23 PAS sees and presents itself as a party that follows Islamic ideas and practices faithfully, and attempts to discredit UMNO’s Islamic credentials where possible. The opposition PAS went further than UMNO and handed a protest note to the Singapore High

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Commission in Kuala Lumpur demanding that the ruling be retracted. Singapore stood its ground on the basis that it was an internal matter. UMNO agreed to disagree and recognized that this was an internal issue for Singapore. During the press conference at the end of the March meeting between the Young People’s Action Party (PAP) and BN Youth in Singapore, Datuk Hishammudin Tun Hussein, Minister for Sports and Youth concluded that “the tudung issue was discussed. The water issue was discussed. There were areas where we agreed to disagree”.24 Second, the Malaysian response also stems from the persistent “abang-adik” (elder brother-younger brother) mindset under which “Malaysia intends to play its role as an elder brother in this relationship with Singapore and that there should be some deference shown to its leadership”.25 Also pertinent is the view that Singapore’s multi-cultural approach to race relations based on meritocracy does not look after the Malays as well as the Malaysian Malays-first approach.26 “UMNO and other Malay and Muslim organizations in Malaysia tend to see themselves as the protectors of Singapore’s 15 per cent minority Malay population”.27 Looking after Malays Malaysian politicians’ comparison of Malays in Singapore and Malays in Malaysia found little support from Singapore Malays. For instance, when the Malaysian Prime Minister said that UMNO was the saviour of the Malays in Malaysia and had prevented them from becoming like Malay Singaporeans, a minority group with no place in their own nation, not all Malays in Singapore agreed with this view.28 In response to the comments, a Singapore Malay/Muslim group, Taman Bacaan (a non-government social-service organization), responded that “even though we are a minority group in Singapore, we have always been an integral part of Singapore. If UMNO makes what Malaysian Malays are today, then the PAP can be credited for making Malays in Singapore what we are today”.29 It should also be noted that in the post-September 11 environment, there has been ongoing introspection within the Malay/Muslim community regarding their identity and roles. In particular, after the two rounds of arrests of members of the Jemaah Islamiah (JI) in Singapore, Singapore Malays have reaffirmed their Singaporean-first identity.30 The Media as a Factor in the Bilateral Ties The Malaysian media has played an interesting role in the negotiations through its coverage of the issues. Although both the governments in Singapore and Malaysia have expressed that these are sensitive issues and should not be negotiated through the media,31 the tacit approval given for the continued high-profile coverage seems to suggest that the media is used as another channel for negotiation. The media hype over Singapore’s reclamation work off Pulau Tekong is a case in point. Although Dr Mahathir had conceded that Singapore had a right to expand within its own territory, it appears that he also felt it was

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well within the right of the Malaysian media to highlight an operation that could affect the deepest point in the strait, even though it was an activity carried out within Singapore’s boundaries. It was also the Malaysian media which drew attention to the unhappiness over Singapore’s management of the lighthouse on Pulau Pisang (located off Pontian, West Johor, Malaysia).32 Malaysia’s Berita Harian claimed in a frontpage report that many people had voiced their concerns over the behaviour of Singaporeans on Pulau Pisang. The newspaper also claimed that Singaporeans who were operating the lighthouse were entering and leaving the area without following any immigration procedures, “as if the island belonged to Singapore”. The report urged the Malaysian Government to alter the agreement on the use of the island and to make sure that Singapore was not given total freedom on Pulau Pisang. Malaysia also seems to be using its media as a proxy to define the bilateral agenda. For instance, Foreign Minister Syed Hamid Albar had told reporters that the “Mahathir administration will discuss another water agreement — but only after Singapore accepts Malaysia’s right to review the price of water”.33 The statement released by Singapore’s Ministry of Foreign Affairs (MFA) on this issue, seems to suggest that Malaysia had not officially conveyed this message prior to the announcement in the press. The MFA statement mentioned that “On 22 November 2002, Singapore’s High Commissioner in Kuala Lumpur had sought clarification from Wisma Putra on an earlier statement by Foreign Minister Syed Hamid that the next meeting would discuss only the price review of current water and that Malaysia would not discuss any agreement for future water after 2061 unless Singapore accepts Malaysia’s right to a price review”. There are four possible motives behind the actions of the Malaysian media.34 First, several of the newspapers are owned by political parties which wield great influence over the appointment of the senior editors. This was shown by the change in editorial leadership following the sacking of former Deputy Prime Minister Anwar Ibrahim. But for some other news outlets, party interests are secondary, and their interests are actually driven by the view that news about Singapore are issues of “national interest”. Second, the competition for attention among the Malaysian politicians has translated into easy access of the media to the politicians, and for the media to reflect the views of the politicians they are in touch with. An example of this was the reporting of the reference made in jest by Singapore Minister of State Dr Vivian Balakrishnan to Malaysian reporters as “wild animals” in March 2002 during an exchange visit to the Republic. According to a Straits Times report, it seems that the story broke six days after the remark was made, following a complaint by Mr Abu Talib Alias, head of the Johor Baru UMNO Youth division to the Malay-language daily Utusan Malaysia. Third, the Malaysian media also reflect the communal structure of the Malaysian society. It was the Malaylanguage papers in Malaysia that paid the most attention to the tudung issue. Fourth, Malaysia’s domestic media scene comprises eight main national

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broadsheets and tabloids in Malay, English, and Chinese, plus numerous smaller papers that are weeklies or regional papers. Hence competition probably also contributed to more sensationalization to attract readers’ interest. Impact of Leadership Changes In the midst of all these issues lies the question of how the impending leadership changes on both sides may affect each side’s handling of the relevant issues. On the Malaysian side, there are two phases: the run-up to Dr Mahathir’s departure and the post-Mahathir phase. With less than twelve months to put the finishing touches to his legacy,35 it is unlikely that Dr Mahathir will want to appear weak by making significant concessions. Regarding the post-Mahathir phase, his successor Datuk Abdullah Badawi has reiterated on many occasions that he will be following closely the principles of Dr Mahathir. In this respect, there is little ground for expectation that the substance would change much in terms of Singapore and Malaysia bilateral relations, although it remains probable that the form may differ given the Deputy Prime Minister’s experience as a former Foreign Minister. In Singapore’s case, the expected transition from Prime Minister Goh Chok Tong to current Deputy Prime Minister Lee Hsien Loong will likely see little change to the two tenets of Singapore’s foreign policy, that of maintaining its sovereignty and conducting its relations with other countries with a strong legalistic emphasis. However, this does not automatically assume a confrontational relationship. A new generation of younger leaders will also be taking over. “Free from the personal traumas of the past, they can make a fresh start at a practical, working relationship”.36 Malaysian Minister for Youth and Sports, Hishammudin Tun Hussein called for a move towards consensus: This new form will have to be based on mutual understanding, and this relationship has to be fair. Singapore is different, compared to yesteryears. So is Malaysia. There needs to be a desire to want to understand the mindsets and culture of both Malaysians and Singaporeans today.… This new relationship also needs to separate the issues that should rightfully be solved by the citizenry and those that should be decided by the governments of both countries. Finally, the form of this new relationship needs to rest on good neighbourly ethics.37

Shared Interests In spite of these ongoing differences, both sides have shown recognition that co-operation is still vital in some areas. For instance, the fight against terrorism is necessarily a transnational effort, and Singapore and Malaysia have collaborated to try to prevent terrorists from acting in their territories. Recognizing their mutual security interests, Malaysia and Singapore have

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co-operated and co-ordinated on the arrests of Muslim extremists involved in terrorist plots in both countries and in the region over the past year. Information provided by Singapore helped the Malaysian authorities to detain members of the Kumpulan Mujahidin Malaysia (KMM), and JI collaborators.38 Dr Ong Chit Chung, Chairman of the Government Parliamentary Committee on Defence and Foreign Affairs, Singapore, said that there were “well-established channels of contact” between the authorities on both sides, which would help to prevent misunderstanding in the event of an attack.39 The economic linkages between Singapore and Malaysia have grown stronger. Malaysia has overtaken the United States as Singapore’s leading trading partner. Singapore was Malaysia’s second largest export destination after the United States. Malaysia’s exports to Singapore were 17 per cent of its global exports in 2001.40 The amount of trade between Singapore and Malaysia was valued at S$73.8 billion in 2001.41 As Singapore–Malaysia trade accounts for 43 per cent of total ASEAN trade, there is also a common interest in working together to help ASEAN economies out of the current slowdown. Malaysia’s Trade and Industry Minister described the two countries as the “anchor countries” of the region. Singapore is a major contributor to Malaysia’s tourism dollar. Singaporeans made nearly 9 million trips into Malaysia in 2002.42 Based on Malaysian projections, Singapore would likely contribute half of the tourism dollars that Malaysia hoped to earn during the year. Johor alone receives more than RM2.4 billion (S$1.6 billion) in foreign exchange annually from Singapore. In terms of food, from January to April 2002, Singapore imported 59,000 tonnes of vegetables. Malaysia is the largest vegetable supplier to the Singapore market. Malaysians are also important to Singapore’s labour force. There are no figures available officially but according to a Straits Times estimate, there are more than 200,000 Malaysians working in Singapore.43 Other indicators that reflect the continual engagement between Singapore and Malaysia include the steady streams of visits and exchanges between the government leaders and officials, and the continuing co-operation between the military forces, as shown in the joint military exercise between Singapore and Malaysia code-named Exercise Semangat Bersatu that took place in August.44

OUTLOOK Following Malaysia’s success in the International Court of Justice over the islands of Sipadan and Ligatan, Malaysia can be expected to seek arbitration for the rights over Pedra Branca/Pulau Batu Puteh and the water issues. Arbitration is generally a long process but given the current impasse between the two countries, it may well be a useful resolution mechanism which will help to reduce tensions between Singapore and Malaysia.

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The issues mentioned above show little sign of subsiding anytime soon. Unless paradigms change, the differences that have beleaguered the two countries will persist. In the short to medium term, there does not appear to be any internal or external catalysts relating to either country which would drastically change the respective predominant paradigms driving each side’s approach to bilateral relations. The differences manifested in 2002 are likely to persist into 2003 and probably even beyond.

NOTES 1. Parliamentary Debates Singapore Official Reports 75, no. 10, 31 October 2002, p. 27. 2. Ramlan Said and Shamini Darshni, “PM: No More Cheap Water”, New Straits Times, 11 October 2002. 3. Kyodo News, “Malaysia to supply water to Singapore for next 100 years”, 21 June 2002, . Hong Kong pays a substantially higher price because it has not invested in any infrastructure to treat the water. 4. Water Agreements allow for a price review using the rise and fall in the purchasing power of money and the rise and fall in the cost of labour, power, and materials for the purpose of supplying the water, and there are no provisions for retrospective payments. Since PUB incurs all these costs, the only relevant factor is the change in the purchasing power of money. Using the Malaysian Consumer Price Index (MCPI), we calculated that the revised price of raw water would be no more than 12 sen per 1,000 gallons. On treated water, applying the same formula, a figure of RM2 per 1,000 gallons was arrived at. 5. The reclaimed water, treated until it is cleaner than tap water, was declared safe to drink on 11 July 2002, after two years of testing by an independent panel of local and foreign experts. Dominic Nathan, “With Newater Will Come More Fluid Bilateral Relations”, Straits Times, 30 July 2002, p. 12. 6. J.S.R. Long, “On the Threshold of Self-Sufficiency”, in Beyond Vulnerability? Water in Singapore–Malaysia Relations, edited by Kwa Chong Guan, IDSS Monograph No. 3, (Singapore: Institute of Defence and Strategic Studies, 2002), pp. 97–149. 7. By 2003, the Bedok and Kranji NEWater plants will be in operation. They will be followed by the Ulu Pandan and Seletar Newater plants which will become operational by 2011. These four plants will be producing more than 55 mgd of Newater. By 2005 Singapore’s first large-scale desalination plant will be producing 30 mgd. By 2009, Marina Bay will be turned into a freshwater reservoir, a new reservoir will be built downstream of Lower Seletar Reservoir, and all reservoirs would be linked by then to maximize their yields. The total yield from these sources would produce at least 85 mgd extra fresh water. 8. Agence France Press, “Singapore Tells KL It Can Be Self-Sufficient with Water Needs”. Business Times, 23 July 2002, . For an in-depth discussion on the alternative sources of water available to Singapore see Kwa Chong Guan, ed., Beyond Vulnerability? 9. Parliamentary Debates Singapore Official Report 75, no. 10, 31 October 2002, p. 25. 10. Lee Kuan Yew, From Third World to First: The Singapore Story 1965–2000 (Singapore: Times Media, 2000), p. 287. 11. Parliamentary Debates Singapore Official Report 74, no. 8, 13 May 2002. 12. Reme Ahmad, “Malaysia Reveals Asking Price for Water”, Straits Times, 8 July 2002, p. 1.

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13. Boleh and tak boleh are Malay for “can do it” and “cannot do it” respectively. Chua Lee Hoong, “No Polite Lunch in Bilateral Competition”, Straits Times, 1 May 2002, p. 32. 14. Tony Allison, “A new era in Asian shipping”, Asia Times Online, 2 September 2002, . 15. Eddie Toh, “Malaysian Bridge to be Built even if Singapore Stays out”, Business Times, 23 January 2002, p. 2. This project was estimated to cost RM2 billion (S$967.2 million) and was expected to be completed in January 2006. The proposal includes a 1.1-km bridge with a height of 25 metres above sea level — an elevation similar to that of the Second Link in Tuas. The road bridge would be curved to allow it to descend to the Singapore half of the Causeway. The present Malaysian half of the Causeway will be demolished once the road bridge is completed. 16. The three protest notes did not in any way contain the detailed facts about Malaysia’s concern and how the reclamation affected them. Parliamentary Debates Singapore Official Report 74, no. 7, 3 May 2002. 17. Reclamation works are entirely within Singapore waters and there is no encroachment. Singapore Minister for National Development Mr Mah Bow Tan explained to Parliament that the works also did not and could not change the territorial boundary in the Johor Straits. This boundary was defined by fixed geographical co-ordinates since 1995 in an Agreement that was signed and ratified by Singapore and Malaysia. The reclamation will not reduce or otherwise affect the existing width of the shipping lane. Water quality in the Johor Straits has also been jointly monitored on a regular basis by Singapore’s Ministry of Environment and Johor’s Department of the Environment (DOE) since 1991. The results have shown that the water quality in the Johor Straits has remained unchanged even after reclamation started. Parliamentary Debates of Singapore Official Report 74, no. 6, 5 April 2002. 18. This led to a peaceful protest in May by the Malaysian fishermen against Singapore’s land reclamation activities. They also demanded compensation for loss of income. Agence France Press, “Johor fishermen protest Singapore land reclamation work”, Malaysiakini.com, 16 May 2002, . 19. According to K.S. Nathan, Malaysia’s rapid industrialization is yet another source of growing competition for Singapore — in such areas as port facilities, airports, and infrastructure projects — all of which could reduce the cutting edge which has been enjoyed by Singapore for a long time. K.S. Nathan, “Malaysia–Singapore Relations: Retrospect and Prospect”, Contemporary Southeast Asia 24, no. 2 (2002): 385–410. 20. William Choong, “Singapore FTAs not an issue, so long as ASEAN partners get same perks”, Straits Times, 2 August 2002, p. A14. 21. Chua Lee Hoong, “No Polite Lunch in Bilateral Competition”. 22. Leslie Lau, “Politicians and Groups Criticise Singapore over Tudung”, Straits Times, 31 January 2002, p. A8. 23. P. Ramasamy, “PAS’ Wrong Foot Forward”, Straits Times, 17 July 2002, p. 17. See also K.S. Nathan, “Malaysia: 11 September and the Politics of Incumbency”, in Southeast Asian Affairs 2002 (Singapore: Institute of Southeast Asian Studies, 2002), pp. 159–76; Lee Hock Guan, “Malay Dominance and Opposition Politics in Malaysia”, in Southeast Asian Affairs 2002 (Singapore: Institute of Southeast Asian Studies, 2002), pp. 177–95. 24. Brendan Pereria, “KL, Singapore Politicians Agree to Disagree”, Straits Times, 2 March 2002, p. 1. 25. Lee Kuan Yew, From Third World to First, p. 280. 26. For a discussion on the idea of bumiputera see A.B. Shamsul, From British to Bumiputera Rule: Local Politics and Rural Development in Peninsular Malaysia (Singapore: Institute of Southeast Asian Studies, 1986).

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27. Tim Huxley, “Singapore and Malaysia: A Precarious Balance?”, Pacific Review 4, no. 3 (1991): pp. 204–13. The Malaysian view also stems from the unresolved issue of Malays who were first indigenous in Singapore, but by act of arbitrary separation, became a minority in a Chinese-dominant state. For a discussion of this view, see Lily Zubaidah Rahim, The Singapore Dilemma: The Political and Educational Marginality of the Malay Community (Kuala Lumpur: Oxford University Press, 1998). 28. “3 More Groups Reject Remarks by Mahathir”, Straits Times, 17 October 2002, p. H7. 29. “Malay/Muslim Group Rejects Remarks by Mahathir”, Straits Times, 16 October 2002, p. H5. 30. See G. Koh and G.L. Ooi, “Singapore: A Home, a Nation?”, in Southeast Asian Affairs 2002 (Singapore: Institute of Southeast Asian Studies, 2002), pp. 255–81. 31. In his parliamentary speech, Foreign Minister Jayakumar said, “If the goal is to resolve the problem, then conducting bilateral relations through the media restrict manoeuvrability of both sides. It is much easier to find a solution which would benefit both parties if such issues are quietly handled”. A reference was also made to Malaysian Foreign Minister’s comment in 1999 when he said, “But what is considered as sensitive and can be misunderstood and can create tension should be kept outside the public domain”. “M’sian Ties: Stick to Facts and Stay Cool”, Straits Times, 17 May 2002, p. 8. 32. The 180-hectare island is owned by the Malaysian Government except for the area around the lighthouse and the road leading to it, which are managed by Singapore’s Maritime and Port Authority (MPA). In the late nineteenth century, the British government obtained an indenture from Johor to build and maintain a lighthouse on Pulau Pisang to aid ships navigating in the area. In 1900, an agreement on this was signed by Sultan Sir Ibrahim on behalf of the Johor state government and Sir James Alexander Swettenham on behalf of the British. Singapore, which was a British colony, inherited the task of running the lighthouse from the British government. “Pulau Pisang lighthouse area managed by Singapore”, Malay Mail, 15 April 2002. 33. Brendan Pereira, “KL Insists It Will Discuss Only Water-Price Review”, Straits Times, 20 November 2002, p. 6. 34. See Lydia Lim, “Bilateral Issues: Two Countries, Two Reactions”, Straits Times, 16 March 2002, p. H12–13. 35. Brendan Pereira, “Mahathir’s 11 Months to Shape a Lifetime Legacy”, Straits Times, 17 December 2002, p. A1. 36. Lee Kuan Yew, From Third World to First, p. 291. 37. Hishammudin Tun Hussein, “Let’s move to consensus”, New Straits Times, 19 March 2002. 38. Mushahid Ali, “Squabbling Neighbours, Security Partners”, Straits Times, 25 September 2002, p. 18. 39. “JI Plan to Disrupt Relations Naïve”, Straits Times, 21 September 2002, p. H7. 40. Yang Razali Kassim, “Making it Together — Like Chang and Eng”, Business Times, 8 August 2002, p. 8. 41. Singapore Trade Statistics. Annual Report for Total Trade. 42. Dan Guen Chin, “Singaporeans visited Malaysia nine million times this year”, New Straits Times, 2 November 2002. 43. “Malaysians’ CPF Withdrawal Discussed”, Straits Times, 2 June 2002, p. 2. 44. “Ex Semangat Bersatu”, Press Release from Ministry of Defence, Singapore, 20 August 2002, .

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THAILAND

Southeast Asian Affairs 2003, pp. 277–90

THAILAND Democratic Authoritarianism

Thitinan Pongsudhirak

Introduction On the face of it, 2002 should be seen — in the parlance of political science — as the year of intensification of Thailand’s democratic “consolidation”. The promulgation of a new Constitution in October 1997 had been the culmination of five years of political reforms designed to exorcise the ghosts of frequent military coups, patronage, “money politics”, and vote-buying that long plagued the country’s politics of representation. Less than three years later, 200 senators were elected to the upper chamber for the first time. The election of the 500-member lower house followed suit in January 2001. Concurrently, a clutch of so-called democratic institutions, revolving around the Election Commission, the National Counter Corruption Commission, and the Constitution Court, were spun into action as mandated by the Constitution in an effort to promote transparency and accountability of the political system. The stability and effectiveness of the government were constitutionally enhanced by new electoral stipulations that induced a consolidation of the party system towards larger political parties and by “partylist” mechanisms that enabled capable individuals to enter Cabinet relatively untainted by the mud slinging of election campaigns. Given the eclectic design of the Constitution, its initial implementation in the aftermath of the 1997 economic crisis generated pervasive optimism both at home and abroad. The Thai economy may have lost a decade of growth, but at least Thai democracy was on its way to fulfilment. Or so it seemed. As 2002 drew to a close, it has turned out that Thailand’s democratic consolidation is less than meets the eye. The government of Thaksin Shinawatra, the prime minister who ushered his Thai Rak Thai (TRT) party into power on a landslide victor y in the Januar y 2001 election, has arguably turned Thai democracy on its head. The TRT has monopolized the party system, marginalized the opposition, co-opted and coerced the media, extended its controlling tentacles over the military and the police, and shunned the dissenting voices of civil society groups. The vaunted democratic institutions have become politicized and penetrated by the THITINAN PONGSUDHIRAK is a Lecturer in the Department of International Relations, Faculty of Political Science, Chulalongkorn University. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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very vested interests they were established to root out. The Senate, which is supposed to be politically unaffiliated, has become increasingly partisan in the government’s favour. As a result, the institutional design of checks-andbalances, transparency, and accountability has malfunctioned.1 Government stability and effectiveness, however, have been boosted by the TRT’s overwhelming leverage in the ruling coalition and the party’s unassailable majority in the legislature. It is as yet unclear to what end Thailand’s unprecedented coalition stability and legislative effectiveness will be wielded. What is clear, however, is that Thai politics has become paradoxical with a remarkable tinge of democratic irony. On paper, Thailand under Thaksin as governed by the 1997 Constitution is more democratic than ever. In practice, Thaksin’s rule is increasingly authoritarian, so much so that it can be compared to past military dictatorships. Oxymoronic as it may seem, democratic authoritarianism is an apt description of Thailand in 2002. Accordingly, this chapter surveys key episodes over 2002 that underpinned such authoritarian rule under democratic guises. It begins with party politics, including Thaksin’s methods for controlling his TRT and coalition government and the post-election imbroglio of the opposing Democrat Party (DP). The chapter then sheds light on the questionable performance of the democratic institutions and on Thaksin’s manoeuvres in the military, the bureaucracy, the media, and the economy. The underlying theme is the prime minister’s centralization and personalization of power under his towering dominance over the political environment to initiate policies that have indelibly changed the face of Thai politics. The chapter concludes with a reflection on whether Thaksin is ultimately advancing “Thailand Inc.” through his economic nationalism and populism or merely “Thaksin Inc.”. Divide-and-Rule: Thaksin’s Party and Coalition Government To be sure, the Thaksin government got off to a shaky start in its first year. Its populist policy agenda was widely doubted for apparent profligacy and incoherence. As prime minister, Thaksin himself was hounded by a corruption trial stemming from an alleged concealment of personal assets that should have been declared upon taking office. Intra-party wrangling within the TRT and inter-party squabbling within the TRT-led coalition government also marred Thaksin’s first year in power. However, the former police officer turned businessman and politician eventually weathered the several storms that blew his way. After a narrow, controversial acquittal in his corruption trial, he put the TRT in order and whipped the three-party coalition into shape. His populist policy measures were implemented with great fanfare and with a pledge that they will yield the intended results to uplift the Thai economy in 2002 and beyond. After securing his hold on power in 2001, Thaksin faced a number of daunting challenges in 2002 that were to determine the effectiveness

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of his populist programmes and, consequently, the longevity of his rule. First and foremost was the congenitally fractious political party scene. To ensure sufficient political stability to launch his policy initiatives, Thaksin effectively employed a divide-and-rule strategy to keep both his TRT and coalition government in line. A seasoned monopolist whose Shinawatra telecommunications conglomerate was nurtured during its formative years by exclusive state concessions eked out of well-placed political connections,2 Thaksin essentially monopolized the party system by taking over the New Aspiration Party (NAP), an erstwhile junior coalition partner.3 The NAP acquisition increased the TRT’s seats in the 500-member lower house to 57 per cent, an outright majority. After the NAP takeover, Thaksin enticed another medium-sized party, the Chart Pattana Party (CPP), to defect from the opposition benches to the ruling coalition.4 Together with the CPP and Chart Thai Party (CTP), the TRT-led coalition commanded more than 70 per cent of lower house seats. With its 129 MPs, the Democrat Party was relegated to the political wilderness as the lone opposition. As the TRT expanded to become the largest elected political party in Thai history with a solid legislative majority, Thaksin proved adept at keeping its main factions and personal rivalries in check. The demands of the TRT’s “Wang Nam Yen” wing were balanced with those of the “Wang Bua Ban” camp. Snoh Thientong, an “old-style” nominal chieftain led the former, rivalled by Wang Bua Ban’s Yaowapa Wongsawat, Thaksin’s younger sister. Despite intra-party wrangling over their party’s absorption into the TRT, NAP members quickly fell in line behind Thaksin who was known to have acted as the NAP’s major campaign contributor in the runup to the January 2001 election. With the fourth TRT column consisting of Bangkok-based MPs firmly behind him, Thaksin was able to balance the political forces within his party. Although the TRT occasionally encountered fissures in its cohesiveness, its strength in numbers remained intact throughout 2002. Those numbers and the party’s overall majority in the lower house, in turn, enabled Thaksin to keep a tight rein on coalition discipline. The CTP, a junior coalition partner, yielded to the TRT’s policy preferences and portfolio allocation in exchange for keeping its place in government. Also determined to stay in government, the CPP was even tempted to fold its twenty-nine members into the TRT. The TRT-CPP merger has yet to take place but is expected to solidify ahead of the next election, which is due by early 2005. The Opposition: The Democrat Party’s Moment of Truth Thaksin’s political dominance is partly attributable to the Democrat Party’s political misfortunes and its inability to regroup after being trounced by the TRT in the January 2001 election. Almost two years after its spectacular electoral defeat, the DP was still in self-denial. It insisted that its rival

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upstart’s triumph rested solely on Thaksin’s financial muscle, that a shallow campaign war chest was responsible for its loss. The painful truth was that the DP was unable to match the TRT’s concrete agenda on the policy battlefront that shaped Thailand’s new political landscape. That agenda addressed long-standing public grievances, especially those in the countryside, with a tangible plan of action. Behind the DP’s excuses was an unwillingness to face the new political game the TRT had set up. Money politics, as ever, was critical to the electoral outcomes of January 2001. Yet the role of ideas — particularly economic ideas — was a novelty the DP had failed to grasp. The TRT’s policy promises of r ural debt suspension, a revolving entrepreneurial fund of 1 million baht (US$23,500) for each of the more than 70,000 villages, the universal healthcare coverage of 30 baht (less than US$1) per hospital visit, and an assortment of lenient and seductive credit extension programmes for virtually all sectors of Thai society had proved decisive in its victory. Tied to its self-imposed self-denial was the DP’s post-election leadership uncertainty throughout 2002. Faced with the TRT’s awesome ascendancy, it was imperative for the DP to clean its house and come up with a more attractive policy agenda. Thailand’s oldest political party, however, clung to the same leadership that had led it to three successive electoral losses (including those to Banharn Silapa-archa’s CTP in July 1995 and Chavalit Yongchaiyuth’s NAP in November 1996). Although the DP put in a respectable performance in grilling a string of cabinet members in the May 2002 censure debate,5 it fell far short of proposing a programme that could compete headto-head with the TRT’s. Chuan Leekpai, the DP’s decade-long leader and two-time prime minister, was widely seen as a spent force. His Bangkok-based thirty-eight-year-old protégé, Abhisit Vejjajiva, armed with boyish good looks and a reputation for integrity and intellect, has all the makings of a future DP leader in the near term and a prime minister of Thailand in the years ahead. While he is popular with Bangkok voters, Abhisit’s drawback is that he has not been seen among the party’s foot soldiers as one of their own, having shunned patronage politics and the cultivation of cosy patron-client ties with rank-and-file MPs from rural constituencies. His candidacy to succeed Chuan depends on Suthep Thueksuban serving as party secretary-general. Suthep, a Chuan loyalist from the DP’s heartland in southern Thailand, has considerable clout within the party that might make up for Abhisit’s relative lack of acceptability. Unsurprisingly, the Abhisit-Suthep ticket has encountered stiff resistance. Opposing them is a DP faction loyal to former secretary-general Sanan Kachornprasart, who is serving a five-year ban from political office for a false assets declaration. The Sanan camp wants Banyat Bantadtan, an uninspiring old-style political warhorse, to replace Chuan and to be assisted by Pradit Phataraprasit, Sanan’s protégé, as secretary-general. The Chuan-Sanan tussle over succession hindered the DP’s efforts in checking government performance

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and regaining voter support throughout 2002. It also gave rise to Sanan’s suggestion of a “third party” alternative through revolt and breakaway and his insinuation of outright defection to the TRT in the event the Banyat-Pradit team loses.6 Although Chuan indicated that he will not run for the leadership post when the DP elects its new leader in April 2003, he also did not rule out another term if nominated through the party’s ballot box. Towards the end of 2002, Arthit Urairat, a deputy party leader who had emigrated from the now-defunct Seritham Party several years ago, threw his hat in the race to thicken the plot.7 Whether Banyat, Abhisit, Chuan, or Arthit takes the helm after April 2003, none of them is likely to measure up to Thaksin’s personal stature and popularity until the DP infuses workable and sellable policy ideas into its inchoate platform. The Constitution’s Anti-graft Institutions: Politicization and Disarray Since the Constitution Court cleared Thaksin of assets concealment charges in August 2001, public confidence in Thailand’s democratic institutions appears to have sagged. The Constitution Court’s landmark decision ran counter to an overwhelming indictment by the National Counter Corruption Commission (NCCC), which had passed an 8-to-1 judgement against Thaksin. The latent impact of the Thaksin trial should not be understated. One lasting consequence was that Thaksin’s constitutional acquittal sapped the NCCC’s moral and legal authority, effectively subsuming this anti-graft institution under the Constitution Court’s ultimate jurisdiction. Despite the setback from the Thaksin case, the NCCC soldiered on. The commission subsequently considered a host of significant graft allegations against Cabinet members and prominent bureaucrats. Among the handful of anti-graft institutions set up by the Constitution, the NCCC has demonstrated exceptional mettle in the face of fierce and powerful critics and open enemies. However, the continuity of the NCCC’s commitment and resolve cannot be taken for granted when its new members are selected in 2003. By contrast, the performance and credibility of the NCCC’s institutional cousins have been less stellar. The Constitution Court has made limited progress in restoring its credibility after the Thaksin acquittal. The bench issued important rulings in 2002 (see below), but it was unclear if the judges would have the political wherewithal to stare at the facts in future cases as politicized and as profound as Thaksin’s. Tasked to enforce free and fair polls, the Election Commission (EC) also encountered a rough patch in mid2002 when the nomination of its new chairman, Sirin Thoopklam, was deemed by the Constitution Court to be unconstitutional. After initially defying the ruling, Sirin eventually stepped down. Because of a prolonged internal disagreement, it took several months before Wasana Permlap was picked among the remaining EC members as the new chairman.8 Apart from the controversy over member selection, the EC also had to protect its jurisdiction from the Administrative Court, which adjudicates conflicts

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among public officials and between them and the general public.9 Such overlapping jurisdiction along with the long and contentious selection processes of these watchdog bodies stirred confusion bordering on disillusionment among the public. Many had lost count of the various electoral reruns the EC had ordered and the contesting faces of aspiring judges and commissioners. In addition to undermining the moral and constitutional strength of the accountability-promoting institutions, the Thaksin case portended another alarming trend. In 2002, state officials booked by the NCCC simply looked to the Constitution Court for salvation. When Sanan was indicted by the NCCC in March 2000, he immediately resigned from Cabinet and later from his DP secretar y-general position in the spirit of the reform-driven Constitution. However, after Thaksin’s high-profile case — he came under NCCC indictment in December 2000 but did not resign from his official posts in the TRT or from his subsequently elected government — elected officials and bureaucrats tagged by NCCC indictments simply stayed on amid Constitution Court deliberations, feigning Thaksin’s infamous plea of an “honest mistake”. One example was Pichet Sathirachawal, a TRT executive and hitherto deputy minister of communications and transport, who was indicted by the NCCC for a false assets declaration. His Constitution Court trial has become prolonged due to repeated appeals and delaying tactics. 10 Another salient case concerned Veeraphol Duangsungnern, a high-ranking bureaucrat who was indicted by the NCCC for a dodgy procurement project involving the purchase of computers. Virtually overruling the NCCC’s indictment, the Civil Service Commission (CSC), with government blessing, decided to reinstate Veeraphol to a bureaucrat position commensurate with his rank. The Constitution Court later upheld the NCCC’s indictment, forcing the CSC to reverse its stance and embarrassing the government.11 Both the Pichet and Veeraphol cases illustrate a growing disdain among state officials towards the democratic institutions. The Veeraphol saga, in particular, revealed an attempt by state officials to circumvent and marginalize the NCCC. Indeed, as the democratic institutions have been in disarray, afflicted with a crisis of confidence in their credibility, they have been viewed contemptuously by state officials. Other institutions envisaged by the Constitution to uphold accountability also have been marginalized, including the National Human Rights Commission and the National Economic and Social Advisory Council. Dissenting voices from these bodies were practically ignored by the Thaksin government. The Anti-Money Laundering Office (Amlo) was given all the operational space it wanted, but its work was aimed more at silencing government critics than exposing unscrupulous public servants. Clearly, the performance of institutions that were crafted to promote accountability and the rule-of-law has been dismal, so much so that Thaksin no

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longer felt compelled in 2002 to call for constitutional amendments to clip their wings. The Military: All the Prime Minister’s Generals In a country that has experienced an average of one attempted or successful military coup every four years since constitutional rule was introduced in 1932, civil-military relations should never be overlooked. To maintain his political invincibility, Thaksin had to manage the top brass, especially General Surayuth Chulanont, the army chief. During the first half of 2002, the relationship between Thaksin and General Surayuth was tense. General Surayuth had taken a hard-line stance against the United Wa State Army (UWSA), the principal manufacturer and peddler of methamphetamines destined largely for the Thai market. In making a fortune from the drug trade, the UWSA had been tacitly supported by Myanmar’s ruling military clique, the State Peace Development Council (SPDC). The Thaksin administration, on the other hand, had enthusiastically fostered warm relations with the Burmese generals.12 Given their different approaches to dealing with Myanmar, Thaksin’s appeasement policy and the Thai army’s tough stance inevitably clashed. General Surayuth, through his connection with Privy Councillor General Prem Tinsulanond, was seen as closely aligned to Thailand’s monarch, King Bhumibol Adulyadej.13 Hence the conflict between the government and the army also reflected ongoing tensions between Thaksin and the King. The basics of the Thai–Myanmar dispute during 2002 were not hard to fathom. In its drug-combating efforts, which were set as a top national priority by the King, the Thai army viewed the UWSA as a threat. Because of the SPDC-UWSA alliance, the army acted sternly towards the Myanmar junta, and covertly supported the minority ethnic groups who fought both Yangon (for autonomy) and the UWSA (against methamphetamine production). The two main ethnic groups on this front are the Shan State Army (SSA) and the Karen National Union (KNU). During the second half of May 2002, the Myanmar military launched an offensive against the SSA but it was repelled. Scores of Myanmar soldiers died, and several outposts were captured. Yangon accused the Thai army, which had been conducting a military exercise at the time, of aiding the SSA. The Myanmar junta sealed the border. Thai Defence Minister General Chavalit Yongchaiyuth called for cessation of the army’s show of force, and Thaksin urged the military not to “over-react”. Shortly thereafter, the prime minister announced an end to Thailand’s “buffer-zone” policy of using the SSA as a lever against the UWSA and Yangon. Although Thaksin’s outburst was quickly recanted, it engendered speculation of General Surayuth’s imminent removal.14 In the event, the speculation was well-founded. The annual military reshuffle presented Thaksin with a timely opportunity to deal with General Surayuth, who was moved to the ceremonial post of supreme commander. Thaksin did it shrewdly by announcing the new high

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command one month ahead of the customary September rotation, a surprise that caught Surayuth and Prem off guard. Surayuth’s transfer from the post of army chief was a de facto demotion. His successor was General Somthat Attanant, a Thaksin loyalist and an in-law of General Thammarak Issarangkul, the then deputy defence minister. In the same reshuffle, the new chiefs of the navy and air force were also Thaksin supporters. Moreover, General Chaiyasit Shinawatra, the prime minister’s cousin, was promoted to become Somthat’s assistant, poised to take over as army chief in 2003. A host of Thaksin’s former military preparatory schoolmates were also elevated to key commands of the army and the police.15 By 2004, they will control the military’s high command as well as the police’s, and will thus strengthen Thaksin’s bases of power. Related to Thaksin’s rearrangement of the traditionally royalist military’s chains of command was his relationship with the King. The monarch’s stinging December 2001 birthday speech, which cautioned Thaksin against apparent “double standards”, raised hopes in some quarters that the monarchy may help to rein in Thaksin’s runaway authoritarianism. However, the King’s birthday speech in December 2002 did not follow up on the previous year’s theme. The Bureaucracy: Thaksin-style Restructuring After he changed the military leadership, Thaksin proceeded to overhaul the bureaucracy. Although delayed for a few days, Thaksin’s two crucial pieces of legislation — the Bureaucratic Restructuring Bill and the Ministerial Restructuring Bill — cleared their final hurdle when the King signed them into law on 3 October 2002. These two bills represented a turning point in Thailand’s administrative landscape, the most important changes in institutional governance for more than a century. The bills streamlined the structurally outdated and entrenched bureaucracy. In a new division of labour and authority, six new ministries were carved out of the existing fourteen. The existing Ministry of Communications and Transport, for example, was split into two, the former christened the Ministry of Information and Communications Technology (ICT). The new culture ministry was also installed to oversee local traditions, customs and way of life, indigenous traits that have been adversely affected by the continual expansion of tourism and the globalization of production and consumption. As tourism has become an important foreign exchange earner and contributor of 6 per cent of GDP, and as Thailand’s success in sports has become more palpable, the Ministry of Tourism and Sports was also created. Other new ministries included energy, social development and human security, and natural resources and the environment. A host of departments and agencies were reshuffled to accommodate the wholesale restructuring of the bureaucracy. The new line-up of twenty ministries entailed a Cabinet reshuffle, with several erstwhile junior ministers given full ministerships. The Cabinet’s overall make-up, however, stayed practically the same.16

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Apart from instituting much-needed bureaucractic reforms, the reconfiguration of the bureaucratic machiner y was an astute political operation. Thaksin basically increased the size of the pie from which he can dish out more rewards and concessions to appease disgruntled elements within the TRT, particularly the sizeable faction under Snoh Thientong, whose wife became the culture minister. Key Thaksin confidants, such as Prommin Lertsuriyadej and Visanu Kruea-ngam, became deputy prime ministers. In addition, CTP executives were given two of the new portfolios (tourism/ sports and social development/human security ministries). The two leaders of CPP, the other junior member of the coalition government, were handed a deputy prime minister post and the labour portfolio. Other Cabinet appointments of note included Suriya Juengrungruangkit’s move from the industry to the transport portfolio. Somsak Thepsuthin, also from Thaksin’s inner circle, took over the industry ministry. Finance Minister Somkid Jatusripitak and Commerce Minister Adisai Bodharamik stayed in their seats. Overall, in his wholesale restructuring of the bureaucracy, Thaksin succeeded in instituting needed reforms that increased his political capital to empower confidants, solidify alliances, and reward associates with the aim of keeping his TRT together, the coalition government intact, and his prospective longterm rule on course. The Media: Thaksin’s Coercion Although its electronic media are largely state-owned, Thailand has a reputedly free and vibrant press. As the parliamentary watchdog institutions proved unable to keep Thaksin in check, the role of extra-parliamentary democratic forces such as the press became paramount. The print journalists, both indigenous and foreign, did try to scrutinize the Thaksin government, but often found themselves at the receiving end. In Februar y 2002, the government threatened to expel two journalists attached to the Far Eastern Economic Review for their critical coverage, which alluded to a collision course between the prime minister and the King.17 Shortly after the Review incident erupted, The Economist’s survey of Thailand in its early March edition was effectively banned18 for being critical of Thaksin and for suggesting that the monarchy’s future role fall firmly under the Constitution. These two episodes, especially the bullying of the Review correspondents, provided ample ammunition to the local press and civil society groups to take Thaksin and his government to task. In response, Thaksin increased pressure on the Thai press and civil society. The Anti-Money Laundering Office (Amlo) almost immediately probed the bank records of no fewer than 247 prominent Thai journalists and civil society activists for financial wrongdoing.19 Thaksin, as the chairman of Amlo, insisted that he did not order the probe, taking cover under “plausible deniability”. Facing mounting public pressure to own up to the Amlo fiasco, the government set up a public inquiry, which concluded that Amlo acted

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improperly but also that it acted on its own initiative. The Administrative Court subsequently found Amlo’s financial harassment of the journalists to be unlawful. Hence Thaksin’s suppression of the dissenting Thai press initially boomeranged, due partly to miscalculation on his part. He was roundly castigated for his attempted censorship. Thaksin’s miscalculation was twofold. First, in view of his strong control of the legislature and the executive branch, he overestimated his success in having divided, co-opted, and coerced the local press to toe the government’s line. Much of the Thai press was indeed compliant, but it took only a minority segment of the press, led by The Nation newspaper group, to stir up trouble for the government. Second, when he applied pressure on the handful of critical newspapers, Thaksin underestimated the concerted response and support from civil society groups, who had been irked by his growing authoritarian tendencies. Apart from Amlo, subtler suppression tactics were also employed. The Nation, which operated a cable television news channel (that is, Nation Channel), came under pressure of contract cancellation from United Broadcasting Corporation (UBC), the cable operator and concessionaire with ties to the government.20 Advance Info Service (AIS), the largest mobile phone operator and subsidiary of the Shinawatra conglomerate, reportedly tapped the handset of Suthichai Yoon, the group editor of The Nation.21 The AIS also cancelled its advertisements with The Nation. While Thaksin’s strong-arm tactics to keep the media under control backfired at first, they apparently made headway in the second half of 2002. By December, avid viewers of Nation Channel noticed an uncharacteristic timidity among the station’s producers about presenting hard-hitting news analyses, the traditional bread and butter of The Nation. Conspicuously, Suthichai became almost exclusively fixated on analysing foreign news, especially the political quagmire in the Middle East. The Economy: Thaksin’s Growth Trajectory22 Buoyed by a consumption boom based on government-directed credit expansion, Thailand’s preliminary GDP growth for 2002 came in at just over 5 per cent. Taking advantage of unprecedented low interest rates and ample liquidity, the government instructed state-owned financial institutions to lend across the board, particularly to the mortgage, retail, and hire-purchase sectors. Credit card loans increased by more than 40 per cent during the year to end-September 2002, and the number of credit cards surged 30 per cent in the first six months of the year. The government’s expansionary fiscal policies also boosted consumer purchasing power, particularly in rural areas. And its populist programmes, which started out with a rural debt moratorium, a revolving village fund, and a generous healthcare system, were implemented and expanded to please all segments of society. These

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populist policies formed the backbone of the Thaksin administration, explaining Thaksin’s resilient popularity and his government’s success in the eyes of voters. Critics initially viewed Thaksin’s populism as reckless and incoherent. They warned of revenue shortfalls and an unmanageable public debt, which stood at 53 per cent of GDP as of end-2002, having trebled since 1997. However, Thaksin used financing strategies that confounded his critics. Off-budget expenditures allowed the government to spend and fulfil its populist promises. State-owned financial institutions such as Krung Thai Bank, Government Savings Bank, and Government Housing Bank were directed to turn on the credit taps with lenient and seductive loan programmes. Other semi-public financial bodies such as the Government Provident Fund (a pension fund for civil servants) and credit unions were also recruited to the lending frenzy. The Thaksin government’s idea was to keep pouring money into consumers’ hands. Consumption would then continue to spearhead growth, and revenue would rise to keep government debt under control. Everything else would take care of itself. It was an idea that bore an uncanny resemblance to the supply-side economics popularized in the United States, with the emphasis in Thailand being on credit injections rather than tax cuts. This idea underscored the so-called dual-track growth strategy, otherwise known as “Thaksinomics”, of boosting domestic demand alongside export reliance. Nevertheless, few would deny that the year 2002 marked Thailand’s economic “recover y” from the lingering aftermath of the 1997 crisis. Encouraged by the solid growth in 2002, Thaksin has boldly promised an economic expansion of 6 per cent for 2003, and is likely to roll out a multitude of creative populist policies to realize it. It is early days to call in the verdict on Thaksin’s growth strategy. At minimum, such an expansive off-budget expenditure platform resembles a gamble. As credit assessment and repayment ability have been virtually ignored, a domestic debt crisis may emerge if retail borrowers overspend without sufficient earning capacity. If the trajectory of growth falls under the 4–5 per cent range, a government debt crisis may ensue. Growth may also be stifled by external factors, which have also been overlooked. Yet Thaksin appears committed to this course. It is likely to deliver him another term of office. He seems to have welded his myriad populist programmes, most of which have a medium-term shelf-life, to his electoral prospects. Conclusion: Thailand Inc. or Thaksin Inc.? Half way into his four-year term, Thaksin has carefully cultivated an unprecedented degree of political stability under democratic rule that is impressive even by the standards of bygone military-authoritarianism. He has been able to shrewdly overcome challenges to his rule, including his own corruption trial, corruption allegations against his Cabinet ministers,

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displeasure from the palace, rumblings from the military barracks, and dissent from non-government organizations (NGOs), academics, and the media. While navigating the pitfalls that derailed his elected predecessors, Thaksin consolidated his hold on the lower house to seal an outright legislative majority. He has reshaped the military to shore up his rule, replacing its prickly top brass with loyalists. Because of Thaksin’s insistence and his unshakeable grip on the legislature, the bureaucracy was extensively overhauled for the first time in 110 years. The Prime Minister also has weathered the scrutiny of the much-vaunted independent democratic institutions, such as the NCCC, the Constitution Court, and the EC. These institutions have become politicized and penetrated by partisan interests connected to political parties — Thaksin no longer needs to amend the Constitution to curb their authority. While the TRT was strengthened in the past year, the DP of the opposition has been in the doldrums. Emboldened, Thaksin will press on with his brand of economic nationalism that will attempt to turn Thailand into a hybrid between Singapore and Malaysia, a strong state marked by one party-dominant rule brandishing an absolute parliamentary majority with democratic appearances. At issue are two coalescing scenarios. One is Thailand Inc., the other Thaksin Inc. Given the growing number of industrial policies designed to target certain industries to promote growth, reinforced by a “self-reliant” and nationalist drive, Thailand will resemble a state-guided “developmental state”. This model is clearly what Thaksin and his strategists had in mind in picking the industries such as small and medium enterprises, agribusiness, automobiles, the rural sector, and tourism to spearhead Thailand’s longer term growth. The basic difference between the Thaksin government’s state-driven development and similar strategies previously adopted by Japan, South Korea, Taiwan, and Singapore is a domestic orientation as opposed to export dependence. In an authoritarian fashion, Thaksin and his economic team will try to reduce the overall GDP’s exposure to exports from around 60 to 40 per cent and boost domestic consumption to make up the difference. Thailand in this scenario will be a decidedly paternalistic state more internally driven and less reliant on export-led growth. On the other hand, the Thaksin Inc. scenario envisages Thaksin’s populist policies as cynical instruments to maintain voter support with vested interests reaping most of the gains from easy consumer credit, rural revival, and the selective promotion of industries connected to businesses of Cabinet members and government financiers. The prime minister’s booming Shinawatra telecommunications conglomerate epitomizes such vested interests. Thaksin Inc. harbours the self-reliant and nationalist characteristics acclaimed by the Thai leader, but its real benefits are to be reaped only by government insiders. Farmers will have access to credit but will only find themselves more indebted, unable to repay their loans, and

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ultimately misled by government promises. The credit system under Thaksin’s populism will become shoddier than even the dismal standards that prevailed before the 1997 crisis. An economic bubble rooted in property speculation and reckless credit expansion will undermine growth. Government debt will skyrocket with profligate expenditure programmes fast outstripping revenue. A Latin American-style fiscal crisis will loom, and it will all end in tears. Thus far the Thaksin government has put in place policies and promises that reflect elements of both scenarios. Whether Thailand Inc. or Thaksin Inc. takes hold will depend on Thaksin. He will no doubt want to make the two compatible, not mutually exclusive.

NOTES 1. Although it is early days to arrive at conclusions about the prospects of Thai politics under Thaksin, some scholars have already begun to note the defectiveness of Thailand’s political system during the five years since the 1997 Constitution was promulgated. See, for example, Duncan McCargo, “Democracy Under Stress in Thaksin’s Thailand”, Journal of Democracy 13, no. 4 (October 2002); “Balancing the Checks: Thailand’s Paralysed Politics Post-1997”, Journal of East Asian Studies 3 (2003). 2. For more details on the rise of Thaksin’s telecommunications conglomerate, see Ukrist Pathmanand, “The Thaksin Shinawatra Group: A Study of the Relationship between Money and Politics in Thailand”, Copenhagen Journal of Asian Studies 13 (1998). 3. “NAP Officially Dissolved”, Bangkok Post, 2 April 2002. The NAP was the second party to be taken over by the TRT. The first took place in mid-2001 when the Seritham Party and its fourteen MPs were absorbed into the ruling party. 4. “Reshuffle Provides Very Little Change” Bangkok Post, 8 March 2002. 5. Matichon sudsapda (in Thai), 3–9 June 2002, pp. 9–11. 6. Matichon sudsapda, 9–15 September 2002, pp. 10–11. 7. Matichon sudsapda, 24–30 January 2003, p. 11. 8. “Sirin Gives Up His Role as Chairman”, Bangkok Post, 6 July 2002; “Chairman Picked, at Last”, Bangkok Post, 30 November 2002. Jarupat Ruangsuwan, a retired army general, was selected in October 2002 as the fifth EC member. 9. “Watchdog, Judges in Turf Battle”, Bangkok Post, 7 October 2002. 10. “Pichet Asset Case Likely to Drag on Longer”, Bangkok Post, 15 February 2003. A final verdict on Pichet is not expected until well into 2003. 11. “Three Cheers for Landmark Ruling”, Bangkok Post, 16 February 2003. 12. There have been various press reports that at stake also were hotel and gambling businesses straddling the Thai-Myanmar border, some of which were owned and operated by the prime minister’s associates and substantial satellite interests in Myanmar of the Shinawatra family. 13. Matichon sudsapda, 17–23 June 2002, p. 9; 15–21 July 2002, p. 13. 14. Matichon sudsapda, 5–11 August 2002, p. 9. 15. Matichon sudsapda, 9–15 August 2002, pp. 9 and 13. 16. “Why and How the PM Picked His Men”, The Nation, 5 October 2002. 17. In the event, the Review issued a formal apology but expressed its “regret” to the Thai people rather than to Thaksin. The magazine also did not replace the two correspondents in question. See “Review Apologises for Controversy”, Bangkok Post, 5 March 2002.

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18. The ban was de facto on the understanding that the Thai authorities would confiscate the edition in question from newsstands if it enters circulation. Consequently, The Economist decided not to circulate its Thailand survey. 19. “Panel blames two chiefs over probes”, Bangkok Post, 16 March 2002; “Nation executives point finger at PM over financial probe”, Bangkok Post, 13 June 2002; “Judge backs revocation of Amlo order, clears Thaksin”, Bangkok Post, 21 June 2002. 20. “UBC ‘Pressured to Axe Nation Channel’”, Bangkok Post, 15 March 2002. 21. “Nation Chief Claims AIS Tapped Phone”, Bangkok Post, 14 March 2002. 22. This section is based on “Thailand: Country Report”, Economist Intelligence Unit, February 2003; “Economic Review Year-End 2002”, Bangkok Post, 30 December 2002.

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Southeast Asian Affairs 2003, pp. 291–309

SOME REFLECTIONS ON THE THAI MONARCHY

M.R. Sukhumbhand Paribatra

Soul of the Nation The tension, as the cliché goes, was so thick one could almost cut it with a knife. It was the night of Wednesday, 20 May 1992. After three days of street violence, Bangkok was bracing itself for a bloody showdown between troops and demonstrators. Rumours of conflicts within the military abounded. The situation seemed hopeless. More and more people began to pray for the kind of political miracle that had taken place nearly two decades before, during the 1973 student uprising against military rule. At that time, just as the situation threatened to escalate with considerably more violence and bloodshed, King Bhumibol Adulyadej, the ninth monarch of the ruling Chakri Dynasty, made a dramatic television appearance, which restored public order and resolved the crisis. Eventually, their prayers were answered. The main protagonists, Prime Minister General Suchinda Kraprayoon and Major Chamlong Srimuang, the de facto leader of the anti-government protest movement, were summoned to the palace. The royal audience was broadcast worldwide. With the two prostrate on the floor before him, King Bhumibol quietly gave a lecture on the public interest and the need to avoid an impending “catastrophe” and made a “request” that they “sit down and face the facts together in a conciliatory manner, and not in a confrontational manner, to find a way to solve the problem, because our country does not belong to any one or two persons, but belongs to everyone”.1 Once more there was a miracle. The crisis was instantly diffused. The two powerful protagonists backed down. Battle-ready military units returned to the barracks. Demonstrators dispersed. A few days later, Suchinda resigned, and power was peacefully transferred to an interim government under the respected Anand Panyarachun, who later transferred key military leaders and called a general election. It was extraordinary. In June 1932 royal absolutism was overthrown and replaced by a constitutional monarchy. Since then, the Thai king’s royal powers and prerogatives have been clearly defined and limited in a manner

M.R. SUKHUMBHAND PARIBATRA is a Democrat Party Member of Parliament, and former Deputy Minister for Foreign Affairs, Thailand. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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similar to those of constitutional monarchs in Europe. In May 1992, however, with only a few words of royal advice, considerable bloodshed, perhaps even a civil war, was avoided; normalcy returned; a breathing space to restore rationality was brought about; and, soon afterwards, Thai democracy was back on track. The “Black May” crisis of 1992 demonstrated the unique position of both the monarchy and the present monarch as the “Soul of the Nation”, a term once used by the late statesman-scholar-writer, M.R. Kukrit Pramoj.2 It reaffirmed the roles of both the institution and the living embodiment of that institution, not only as the most revered symbol of national unity, but also as the nation’s conscience, the most effective last-resort conflict manager, and the most powerful force of national reconciliation. At the dawn of the new millennium, King Bhumibol’s popularity seems to be higher than ever. He guided a nation, shell-shocked by the sudden onslaught of an economic crisis, through troubled times with words of wisdom and comfort, and his subjects responded with unprecedented demonstrations of love and respect. On the evening of 5 December 1999, on the occasion of his sixth cycle or seventy-second birthday, the whole nation paid homage by lighting candles and singing his praise. There is no easy explanation for all this. Perhaps one part of the answer lies in history; another in the concept of kingship as developed during the two hundred odd years of the Chakri Dynasty; and the third in the achievements of the present Royal Family. The Past King Bhumibol’s special position in the hearts and minds of the Thai people did not grow in a void. According to Thai tradition, one key attribute of leadership is barami, or charisma or grace accumulated through meritorious deeds accomplished by one’s ancestors and oneself in one’s past and present life. The present Thai monarch’s barami is partly based on the fact that from the very beginning of the Dynasty, the Chakris were, and were perceived to be, saviours of the realm. On 7 April 1767, Ayudhya, for over four centuries the capital city of the Thai empire, was sacked by the Burmese army.3 In one fell swoop, palaces, temples, Buddha images, and almost all the written records of the Kingdom were destroyed, and the empire torn asunder. Phraya Tak, a commoner, led the arduous but ultimately successful struggle to drive the Burmese from the central plains. He assumed the throne as King Taksin and founded a new capital city at Dhonburi, from where the struggle against Burmese power was continued. Chao-Phraya Chakri and his younger brother, also commoners, were two of King Taksin’s most successful generals, playing an integral part in the campaigns to restore the Thai realm, both before and during King Taksin’s reign. In 1782, when the king’s mental state went into decline, precipitating an internal

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power struggle, the former was invited to take up the throne, as King Ramathibodi, or better known in the West later as King Rama I, the first monarch of the Chakri Dynasty. The new king and his brother, appointed Maha Uparat or Second King, carried on with the task of restoration. Threats from the Burmese and other neighbours were kept at bay, and Thai imperial influence was reasserted and extended. Bangkok, across the river from Dhonburi, became the new capital city, where as a symbol of the kingdom’s physical rehabilitation, new palaces, temples, and public buildings were constructed on the architectural model of Ayudhya. Perhaps more importantly, the new dynasty not only helped to restore an empire, but also resurrected a universe. The sack of Ayudhya was more than physical destruction. It must have been a psychologically traumatic experience for a largely traditional society. The city had been a bustling cosmopolitan metropolis of over one million inhabitants. Then, it was no more. After April 1767, only 10,000 remained, having witnessed a nihilistic destruction of their civilization. Moreover, from a spiritual and moral point of view, the sack symbolized a breakdown of society and order. The Ayudhyan conception of kingship was a fusion of Hinduism and Buddhism. According to this conception, as two of the best contemporary Thai political scientists pointed out, The king is not only the political leader of the state but also himself both the state and society. He is the most important centre of the society and is the mechanism of change and development. Any change in society for the better or worse … is dependent on the ruler’s virtues or lack of virtues. One can perhaps say that the ruler is the universe unto himself because he is responsible not only for the consequences of his use of political power but also for changes in nature itself.4

With the fall of Ayudhya, for long the Thai kings’ “celestial seat”, and the destruction of the monarchy, the centre of the Thai cosmos, the source of order, as well as moral and spiritual strength, simply ceased to exist. Thus, the challenge was not only one of physical rehabilitation, but also one of resurrection of a way of life, a civilization and, indeed, an entire universe. The task was partly begun by King Taksin, but it was addressed in earnest during the reign of King Rama I (1782–1809), and later largely completed by Rama I’s son and grandson, King Rama II (1809–24) and Rama III (1824–51). A new “celestial seat” was built in Bangkok on the model of the old. Royal ceremonies, incorporating both Buddhistic and Brahmanic elements, were revived. Traditional codes of law, tightly structured social hierarchy, and politicoadministrative order were reintroduced. Literary arts were revitalized. So were linkages with the outside world, particularly those related to trade. By the end of the Third Reign, a lost civilization had been retrieved and consolidated. The Thai empire was at its zenith, and at its heart stood Bangkok,

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a city of architectural splendour and literary renaissance, home to princes and entrepreneurs, warriors and poets, with the monarchy once more having become the centre and prime mover of the universe, the fount of moral and spiritual strength. During the reigns of King Mongkut, or King Rama IV (1851–68), and his son, King Chulalongkorn, or King Rama V (1868–1910), the kingdom was faced with another round of threats to its survival. Once more, the Chakri monarchs were, and were perceived to be, the saviours of the realm. In the second half of the nineteenth century, the Thai empire was for the first time directly exposed to the full might of Western imperialism, spearheaded by France and Britain. Caught, in the words of King Rama IV, between the “crocodile” and the “whale”, the kingdom managed to avoid the kind of fate that befell most other Asians and remained independent. Anglo-French rivalry definitely helped the Thai cause, but perhaps the real keys to survival were diplomacy and reform. It was King Rama IV who formulated the moral and intellectual framework for these, and King Rama V who was instrumental in translating them fully into practice. At the beginning of the Fourth Reign, power and office had passed to a new generation of pragmatic and progressive leaders, consisting of both royalty and nobility. Acquainted with Westerners, Western thoughts, and Western ways, they were able to gauge the nature and extent of the threat from the West. They understood the need for engagement and accommodation. Among them, foreign policy was not an internal political issue. With this élite consensus, the Thais set about coping with Western imperialism, giving in when they had to and standing firm when they thought they could. To prevent misunderstanding and to promote a progressive, “civilized” image of the kingdom, emphasis was placed on keeping lines of communication open to Western governments, directly through envoys and indirectly through the practice of employing Western advisers. Accompanying this diplomacy of engagement and accommodation was the introduction of internal measures, designed to reduce conditions for Western intervention, as well as to augment the strength and cohesion of the realm. The existence of this enlightened élite at a critical juncture was most fortunate. For Western imperialism presented not only an immediate physical threat but also a longer term moral and psychological challenge. The Thais were forced to face a crucial dilemma. On the one hand, the logic of survival required that they sooner or later accommodate Western ideas and become more “modern” and “civilized”. On the other hand, morally and epistemologically, their concept of the universe was self-sufficient and exclusive, embodying fundamental premises concerning man, nature, kingship, and social organization, which were very different from modern Western ideas. The problem was how to reconcile the seemingly irreconcilable, how to create a fusion between modernity and tradition, which would enable the Thais to benefit from one without destroying the other.

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King Rama IV was able to bring about this fusion through his own person and deeds. From early on, he recognized the value of modernism. Before taking up the throne, he was for twenty-seven years a monk, unburdened by the affairs of the state. During this period, the king had been able to widen the horizon of his intellect and knowledge by learning the English language and reading Western newspapers and books on modern science, geography, history, mathematics, and astronomy. He came to see ignorance and foolish pride as twin threats to a people’s survival. For the king, self-preservation required at least a degree of modernization. The diplomacy of engagement and accommodation was not to be an end in itself but only part of an ongoing process to augment the kingdom’s security by bringing it into greater conformity with the modern world, and projecting it into the arena of modern world politics. Thus, in small but symbolically significant ways, the king personally took the lead. He wrote numerous letters abroad in his unmistakable quaint English, abolished the practice of prostration for Westerners and regularly met with them on both official and private occasions, encouraged the people to take an interest in Western sciences and technology, and provided his children with a measure of Western education. Yet, however progressive he was for his time, the king was always at pains to demonstrate that he had not lost his perspective or sense of proportion, and that Western ideas and knowledge were only means to an end. Like his predecessors, he spent much of his time on Thai art and culture and educated his children in a predominantly traditional way. Through his actions and words, King Rama IV showed that, far from being a destructive alien concept imposed on a weak and unwilling people, modernism could be made functionally useful with the blessings of the Lord of Life, the Lord of the Realm, the fountain and embodiment of moral and spiritual order itself. As we shall see later, not for the first or last time, the Thai monarchy, by legitimating changes, not only made them more acceptable to the subjects, but also preserved its own legitimacy through these very changes. King Rama V inherited the throne from his father as a minor. It was a turbulent time. Outside the kingdom, Western imperialism became even more aggressive. Inside the kingdom, power struggles took place, which could have changed its destiny. It was only well after he came of age in 1873 that he began to stamp his vision and authority on the processes of diplomacy and governance. In many ways, King Rama V was a creation and mirror-image of his father. Intelligent, open-minded, and pragmatic, he continued with the diplomacy of engagement and accommodation as a means of managing the threat of Western imperialism. However, the king was also different from his father. He was convinced to the point of passion that the only way for the kingdom to achieve security and progress was to modernize and, in order to modernize, far-reaching reforms in both the central government and provincial administration had to be brought about. By the end of the Fifth Reign, the kingdom had undergone

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a transformation in the ways it was governed, its taxes collected, its armed forces organized, its infrastructures developed, its people educated, and its laws applied to foreigners. To be sure, the process of modernization was far from completed, but the Thai people were moving firmly towards the modern era. These reforms were crucial in helping to alleviate external dangers. They made the kingdom more centralized, hence stronger and better prepared to face the outside world. They prevented weakness and disorder, which might have induced more Western interventions, perhaps leading to the loss of independence. They created an image of the kingdom as being responsible and progressive and of its king as being civilized and benevolent, which made it possible to deal with the Western powers on a more equal footing. King Rama V could not prevent secession of certain key territories to France and Britain, with the losses to the former being especially bitter, but arguably the kingdom could have easily lost much more, including independence. Equally important for the longer term, by the end of his reign, the kingdom was a fully-fledged member of the society of “civilized” nations. On his visits to Europe, the king was received by crowned heads, and later, the coronation of his son and successor, King Vajiravudh or King Rama VI (1910– 25), was attended by twenty-five representatives from fourteen foreign governments, including all the great powers. During his lifetime, King Rama V dominated the political stage as no Chakri king had done, and when he passed away, as in Victorian England, people mourned not only for him but also for the passing of an age. King Rama VI and his younger brother, King Prajadhipok or King Rama VII (1925– 35), never attained the kind of power and prestige that their royal father did. By the late 1920s, when the economic depression set in, the monarchy was in visible decline, but somehow, the institution retained the special place that it had in the hearts and minds of the Thai people. This was evident in June 1932. A group of military officers and bureaucrats staged a coup d’etat to wrest power from the monarchy. However, the “Promoters” of the so-called revolution did not do away with either the ruling monarch or the monarchy. Indeed, they sought to consolidate their position by “co-opting” King Rama VII as the source of legitimacy for their new Constitution and continued to call themselves “Kha Rajakarn”, or “servants of royal affairs”. For some, it was undoubtedly a question of loyalty, especially those who had once taken the Oath of Allegiance. Perhaps more importantly, however, it was realized that, while the power arrangements had changed, the relationship between the sovereign and his subjects had not, and that “in the eyes of the man in the street or the rice field, his king was still there, the object of his ultimate respect and love”.5 Much later, this relationship was to be confirmed by the spontaneous outpouring of public affections for King Ananda Mahidol, or King Rama VIII (1935–46), even though both before and after inheriting the throne, he spent almost all his life abroad and therefore was a virtual stranger to his subjects.

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The monarchy’s special position in the hearts and minds of the people was also evident in the fact that, after the dust of the 1932 Revolution had settled, King Rama VI and King Rama VII were perceived by most Thais, including the “Promoters” themselves who had no special affections for the monarchy or things royal, to have played important roles as “saviours” of the realm. The former was given credit for beginning the process of negotiation to rid the country of the burden of extra-territorial treaties, through his decision to enter World War I on the side of the Allies, and subsequently to join the League of Nations as a founding member. Moreover, when in the late 1930s some of the “Promoters” sought to use Thai nationalism as an instrument for ensuring the country’s survival and progress in an increasingly turbulent world, they acknowledged the pioneering work done in this area by King Rama VI, and considered him the father of modern Thai nationalism. King Rama VII was widely praised for his selflessness in readily giving up absolute power, which spared the country the horrors of a civil war in 1932 and facilitated the transition to constitutional monarchy. He was also admired for his democratic spirit in conferring legitimacy upon the newly introduced democratic system. These contributions earned the last absolute monarch recognition as the “Father of Thai democracy”. Like his grandfather, King Rama IV, by legitimating changes King Rama VII helped to preserve the legitimacy of the monarchical institution. The anomaly of an absolute monarch being acknowledged as the father of democracy may seem less surprising if one understands the concept of kingship as it developed during the era of the Chakri dynasty. As pointed out earlier, in order to reconstruct the Thai kingdom and to strengthen the new dynasty’s legitimacy, the founders of the Chakri dynasty recreated a new Ayudhya at Bangkok. The central part of this process was the restoration of the Ayudhyan conception of kingship, which was a fusion of Hinduism and Buddhism. While the main thrust of reconstruction was directed towards reviving the Ayudhyan past, it would be wrong to conclude that this involved no initiative or flexibility within the traditional framework, or that Bangkok was a mere replica of Ayudhya. King Rama I and his successors, in fact, broke away from the heavily Brahmanic-divine tradition of Ayudhya, with kings as gods presiding over a divine cosmic order. Partly out of their personal beliefs and partly out of the realpolitik need to broaden the base of support for a dynasty originating from commoners, they placed greater emphasis than before on Buddhism and the Buddhist conception of kingship. In the Thai context, this had its origin in the Sukhotai period around the thirteenth century. According to this conception, the monarch is to rule as a father to his children and in accordance with the law of Buddhist Thammasat. The ideal ruler, among other things, must abide steadfast in the Ten Kingly Virtues. These are: Charity, Moral Rectitude, Sacrifice, Honesty, Compassion, Selfrestriction, Non-anger, Restraint from Harmful Behaviour, Forbearance, and

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Rightful Conduct. In this tradition, the king must rule for the benefit and happiness of his subjects; he must provide both justice and freedom; and his legitimacy is dependent upon his own conduct and meritorious deeds, and his righteousness reflected in the well-being of the people in his charge. This conception of kingship was later to be developed to a fuller extent by King Rama IV. To him, a king was a king because the people wanted him to be; he once said, “a person becomes King only because the people raise him so that he can protect them, externally against foreign invasion and internally against their own tendency to take advantage of one another”.6 When he acceded to the throne, he was to revive the Sukhotai practice whereby the common people had the right of direct petition to the King, and also to break a 500-year-old custom by making the ceremony for drinking the Water of Allegiance a reciprocal one: in return for his subjects’ sworn allegiance, the King was to pledge his own loyalty and devotion to them and their welfare. It was significant that even King Rama V, the most powerful king of the Chakri dynasty, emphasized the need for leadership based upon morality and righteousness. He once wrote: “The power of the king of Siam is not defined in any law, for it is considered overwhelming, and no law, thing, or person can stand in its way. But the truth is that when the king does something, it must be right and just.”7 The early Chakri kings’ emphasis on and development of the SukhotaiBuddhist conception of kingship was of crucial importance. To be sure, many of the Brahmanic-divine elements of the monarchical structure during the Ayudhyan period, including ceremonies, were retained and remain to this day. However, in strengthening the Buddhist-moral elements and restoring the concept of “king as father”, they not only consolidated the dynasty’s legitimacy, but also laid down the foundations for the monarchy’s survival through long years of change and challenge. Through their inspiration, the institution once more emphasized moral leadership, rather than divine rights, which would have made it far more vulnerable to Western rationalism and its proponents, both foreign and indigenous. It became more human, more connected with the people, more public service-oriented, and thus better prepared to face a more democratic and egalitarian world that was to emerge in the twentieth century. The institutional outlook became more flexible and open-minded, to the point that at several critical moments in the kingdom’s history, it was the kings, rather than their subjects, who more readily accepted, co-opted, or initiated changes. As pointed above, this was particularly evident during the Fourth, Fifth and Seventh Reigns, when the moral challenge posed by Western imperialism was successfully coped with, the task of modernization begun, and the transition to democracy made. Part of King Bhumibol’s success, as we shall see later, was based upon the fact that he had inherited this conception of kingship and clearly subscribed to it.

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Like his ancestors, perhaps even more so, he emphasizes the human dimension of kingship. In 1987, before a gathering of all families descended from the Chakri kings, he made it clear that he considered kingship something created, not by divine beings for divine purposes, but by the people, to be depended upon by the people and to act for the good of the people. Like his great grandfather, King Rama IV, he considers himself an “elected” king; he said in another interview, “I am really an elected king. If the people do not want me, they can throw me out, eh? Then I will be out of a job.”8 Like his grandfather, King Rama V, he stresses the need for leadership based upon morality and righteousness; he said, “sometimes it can be understood that the king can do no wrong… The king is, perhaps above the law but, in fact, is under the law which is the Tenfold Practice or Duties of Kingship.”9 In a later interview, he made it clear that the essence of kingship is to serve and to give. To be human is important … One must make the things that are best for the nation or fellow humans. If we do things that are best for fellow humans then it will be better for us since we have achieved something. We are here to be human, to make money so we have money to spend, and to make good names for ourselves so that we are praised. But … if we have money we will spend it and in the end we will lose the money. What is left is the pure soul. That is what we must attain — the pure soul. But if we want to attain the pure soul, we must give … The leaders of the world should … give more, and take less.10

Inheriting the Chakri dynasty’s flexible and open-minded outlook, he believes that change is inevitable and the monarchy must adapt itself to it. At the same time, however, it must continue to discharge its traditional responsibilities. In the same interview, he said: “A constitutional monarch is a symbol of the country and … (to be) successful he must become a living symbol of the country. He must change with the country but, at the same time, he must keep the spirit of the country … the soul of the country … (The) common character of the people must be embodied by the king.”11 Long years of dynastic success and perceptions of dynastic success, together with the inherited concept of kingship, provided the necessary context for King Bhumibol’s success, but the past alone does not provide a sufficient explanation of the present. For a lengthy period after King Rama VII’s abdication, the monarchy was in eclipse. Power was mostly in the hands of a succession of military leaders. Royal ceremonies were neglected or abandoned. King Rama VIII inherited the throne as a minor and spent most of his time abroad. He did not take up permanent residence in the kingdom until 1945. The next year he was dead, found killed by a handgun under mysterious circumstances. The throne passed to his younger brother, Prince Bhumibol, who had never expected to rule and who till then had also spent most of his life abroad. In the early years, the new

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monarch was no more than an onlooker in the topsy-turvy world of Thai power politics. However, just over a decade into his reign, the monarchy was in full resurgence, on its way towards becoming once more the most powerful institution in the realm. The present royal family’s achievements were a crucial factor in this process. The Present Changes of fortune often begin under fortuitous circumstances. This was the case with the revival of the Thai monarchy. In September 1957, Field Marshal Sarit Thanarat staged a successful coup d’etat. Needing to enhance the legitimacy of the authoritarian system he was building, he turned to the monarchy for support. Once more, the king was treated with extreme veneration, as evident from the annual military parades of allegiance and Sarit’s many speeches extolling his virtues and comparing them to King Rama V’s. Once more, the monarchy became the focus of the nation’s attention, as he and the royal family were allowed to travel freely both at home and abroad, with state visits being given extensive media coverage. Again, the monarchy was given an opportunity to be a working institution, as royal involvement in social welfare and rural development activities, conferment of royal decorations for services to “King and country”, and sponsorships of marriages and cremations for non-royal subjects, markedly increased. Assisted by the rapid expansion of communications technologies and television media in the 1960s, King Bhumibol and Queen Sirikit were able to gain access to the hearts and homes of their subjects, in a way that their predecessors in a less advanced age had never been able to do. News of the royal family was given pride of place in all media and thus was unchallenged as a subject of popular attention, and the people loved it. Together, the king and the queen made a handsome and fitting couple, he a picture of goodness, piety, and devotion to duty, and she, an image of charm, beauty, and simplicity itself. However, while a convergence of favourable circumstances made the monarchy’s revival possible at the beginning, there was little that was fortuitous about the way the institution thereafter increased its strength and popularity. After long years of dynastic achievements, the reservoir of popular love, respect, and goodwill was already there, and the young monarch, when given an opportunity to work for his subjects, rapidly deepened and expanded it by doing just that — working for his subjects. With the beautiful Queen Sirikit at his side, he launched himself into the job with a vigour bordering on obsession, taking increasingly close interest in economic development and social welfare. He roamed the length and breadth of his kingdom, walking among his people, showing concern with their well-being, and touching them with his human and yet god-like presence. He personally began to initiate many royal development projects, mostly concerned with improving and managing water, land forestry, and human

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resources, to uplift the fortunes of the rural poor. These initiatives were extended to the highlands and the hill tribes inhabiting them, where his pioneering crop replacement programmes performed miracles in reducing the cultivation of opium and hence the production of heroin. Pictures of him with his trademark camera around his neck, two-way radio on his hip, and folded 1:50,000 scale map in his hands, became the symbol of what was the best and noblest about both the kingdom and the institution that led it. By the end of the 1960s and early 1970s, the resurgence was in full bloom. The monarchy once more became a living and relevant institution, the symbol of national unity, the “Soul of the Nation”. The king continued to work hard well into the 1990s, until health curtailed his activities. The queen or their son, Crown Prince Maha Vajiralongkorn, and daughters, Princess Maha Chakri Sirindhorn and Princess Chulabhorn, usually accompanied him, as he continued to roam the kingdom, tirelessly following up on work in progress, initiating new projects and reaching out to his adoring subjects. Underlying this passion for work is King Bhumibol’s belief in the concept of kingship, which had evolved during the long years of the Chakri dynasty. As explained before, he perceives his task as to serve and to give. Since he considers his kingdom to be besieged by a number of grave challenges, he sees it as his duty to help resolve them through the monarchy’s active leadership of and participation in the country’s development process. One challenge is poverty, especially in the countryside, and the gap between the rich and the poor. Queen Sirikit pointed this out it very succinctly “Misunderstandings arise between people in rural areas and the rich, the so-called civilized people in Bangkok. People in rural Thailand say they are neglected and we try to fill that gap by staying with them in remote areas.”12 To address the challenge, the king acted as the catalyst of development, following both his own and the government’s development projects tirelessly with an eye for detail, and encouraging, and advising government officials in their work. For the king, the key is not to draw up “macro” plans which may be irrelevant to the people, but to bring to the developmental process the human dimension, the balanced touch, and the patient gradualism that are generally lacking in national economic strategies. His concerns with the rural poor were very much in evidence after the 1997–98 economic crisis: he introduced his “New Theory” economics, stressing the need to help small-scale farmers and communities achieve a level of “self-sufficiency” and hence a measure of immunity from external and internal economic turbulence. Central to efforts to introduce such self-sufficiency are attitudinal adjustments: everyone must try to be reasonable and not want too much, and government officials, planners, academics and businessmen must learn to work with one another in harmony, with honesty, patience, circumspection, and sense of morality.

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Indeed, the question of individual adjustment and improvement is a major theme emphasized by King Bhumibol, for he perceives another grave challenge to the kingdom to be the Thai people themselves. “The danger! The publicized danger,” he said, “is communism. But the greed of our own people is more dangerous. If we clash among ourselves it will destroy us and we will become the slaves of what I call the ‘new imperialism’, be it communist or dictatorship or whatever.”13 For King Bhumibol, the key is moral leadership. The monarch acts as the nation’s conscience and teacher. He urges his subjects towards self-improvement by stressing the importance of education and knowledge and by extolling such traditional values as unity, harmony, loyalty, discipline, honesty, sincerity, compassion, charity, sacrifice, moderation, and patience. This is usually done through speeches, especially on the eve of his birthday, when tens of thousands of people gather at the royal palace to pay respect and many millions more watch the nationwide broadcast. Sometimes, however, the medium of exhortation is less conventional. One recent example of this is the king’s retelling of the story of Mahajanaka, one of the lives of Lord Buddha, where he pointed out the virtue of “perseverance without the desire for reward”.14 Another is a book on his favourite pet dog, Tongdaeng, which he praises for being “different from many others who, after having become an important personality, might treat with contempt someone of lower status who, in fact, should be the object of gratitude”.15 It is no small measure of the king’s popularity that both the books and shirts with a Tongdaeng logo were instant sell-outs when introduced. For the king, self-improvement through the attainment of knowledge and traditional values is a crucial factor in bringing progress to the country. Once he advised: “There are both good people and bad people. No one can make everyone a good person. Therefore, making the country contented and orderly is not about making everyone a good person, but about promoting good persons, so that they can govern and prevent bad persons from having power and causing trouble and disturbance”.16 This brings us to the third challenge: continuity and quality of governance, or the lack thereof. Since 1932, the kingdom has gone through fifteen Constitutions, seventeen coups, and fifty-five Cabinet changes. It could hardly have escaped King Bhumibol’s notice that a great deal of his subjects’ time and effort has been spent in searching for the most durable and beneficial system of politics and governance and that this search has often ended up in failure, with adverse consequences for the countr y. For obvious reasons, it is not easy to gauge with any degree of confidence the monarch’s perspectives on the subject, but perhaps, on the basis of his numerous speeches and writings over the years, a number of observations can be made. Firstly, the king has a very clear and consistent conception of what is good for his subjects, a conception which is very much based on tradition.

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The first thing is security, that is, the security of the people. The Thai people have to fight for their freedom, for their independence … and then after that … law and order … (A)t the same time we must have enough food to eat, enough facility to have a good home, to have shelter. These are essential things. And then we must have the social order and more things of the heart, that means that we must be good people, so that there won’t be disorder because people who are good don’t create trouble so much. So we must have religion (emphasis added).17

Secondly, he seems to believe that to achieve what is good for the country the form of governance is less important than good intentions. He once advised a new government after taking its oath of office, “Whatever form the government takes, if (its members) do according to the oath, no problem will arise, because it is not the form of government or governance that is important. The important thing is the intention to discharge (one’s) responsibilities well in accordance to the objectives which have been set” (Emphasis added).18 Thirdly, to him democracy is good, but again the achievement of progress is dependent on those who practise it. He said to another new Cabinet: Democracy is the form of government that should be the best in governing a country because the people have a say in decision-making and the right to show what course the country should take … But democracy is a living thing; it must develop constantly. It may not be the most outstanding system, but it all depends on those who practice it. If the ones in charge practice it in the right manner, then the democratic system could be built up progressively toward the ultimate goal which is the prosperity of the nation with the consent and approval of the people all over the nation.19

In the pursuit of a democratic form of governance, it is important for the Thais to develop their own system. “(We) need not follow any kind of foreign democracy and should try instead to create our own Thai style of democracy, for we have our own national culture and outlook and we are capable of following our own reasoning.”20 Fourthly, for the king, no matter what form of governance the country chooses, politics does not always provide the cure for the country’s ills. In fact, if it is too conflict-ridden or divisive, it may aggravate problems. For the nation is like a human body. Each person has body organs. Each body organ is different, looks different and has different functions. But they all have functions and are constituent parts of us, of our bodies. If a part of the body fails to discharge its duties, other parts of the body will be troubled. If (it) … wishes to function in place of another part of the body, there will be confusion, because it is not suited for the purpose … If each organ discharges its own duties, it will make the body live happily.21

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Because politics cannot be relied upon to contribute to the good of the country, it is important to have apolitical or politically impartial institutions and leaders. He said: “One day it would be very handy to have somebody impartial because if you have in the country only groups or political parties which will have their own interest at heart, what about those who don’t have the power…who are just ordinary people who can not make their view known? They must look up to somebody who is impartial”.22 And lastly, King Bhumibol seems to believe that for the good of the country there should be a constructive interpretation of the constitutional monarch’s role. For reasons of realpolitik, as just mentioned, the king sees the need for a politically neutral institution. Moreover, he is fully aware that, as a matter of principle, his duties as a constitutional monarch require him to be “above” politics and that his political prerogatives are confined to the three rights, that is, the right to be consulted, the right to warn, and the right to encourage. Thus, he assiduously tries to avoid any words or deeds which may be perceived as intervention in political affairs. Former Prime Minister Anand Panyarachun confirmed that on the basis of his experience in government, he had never seen the monarch overstepping the constitutional boundary.23 However, the king also recognizes that in real political life there are “gray areas”, where the law is ambiguous or silent and that in such areas it is possible or even desirable to exert his moral leadership upon the political process. In answer to a journalist’s observation that he had the power to choose his own prime ministers, the king replied that whatever influence he had in this area was based, not on the use of power, but on suasion, “because the people have faith in their king.” He went on to say, “if the chief of state is no good they will make him into a rubber-stamp. But if the chief of state is better they will perhaps ask for his opinion because the opinion is respected — that is the difference. But how can I have the respect of the people? It is because I don’t use the power as you describe. If there is a rule I go by the rule. But if there is no rule then my opinion would be heard (emphasis added).”24 While his subjects continue with their search for the most durable and beneficial system of politics and governance, King Bhumibol acts as the nation’s conscience, last-resort conflict manager, and promoter of national reconciliation, when the need arises. He first played this role during the 1973 crisis, not only preventing the military from further using force against demonstrators, but also helping to establish a civilian government under a widely accepted leadership. On several occasions between 1973 and 1991, the palace “positioned” itself in such a way as to restrain certain actions of military groups, which would have toppled the ruling government, caused bloodshed, or precipitated unpredictable crises. In turn, this role created a balance — precarious at times to be sure — among power groups: the military, bureaucracy, political parties, and business interests. In 1992, he once more saved the nation from a crisis and gave democracy

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another chance to be back on track. One can only speculate what kind of political turmoil might have engulfed Thailand during the economic crisis in the late 1990s, had the king not been there, constantly providing words of wisdom and comfort to a troubled populace and lending moral support to a democratically elected government seeking to address the economic crisis in a democratic way. Although King Bhumibol tries to maintain his position “above” politics, it is inevitable, given the monarchy’s and his own popularity, that what he and members of his family think, do, or say have political implications. Because what they think, do, or say have political implications, it is also inevitable that questions arise regarding the monarchy’s political impartiality. Royal support and approval is seen by some as a necessary source of political legitimacy, even for a democratically elected leader and government. Without it, some say, no one can stay in power for long. There is no simple answer to such questions. However, a number of pertinent points should be made. First, perceptions of the royal family’s political partisanship seem to be largely influenced by the longevity of General Prem Tinsulanonda’s premiership. His close ties with the palace both before and during his eight years in office cannot be denied. Significantly, almost immediately after stepping down in 1988, he was appointed to the Privy Council, which he was later to chair. However, there were also other factors which contributed to Prem’s success. One was the state of the political parties. For most of this period, they were weak, lacking in the kind of leadership which could present a serious challenge to Prem, and yet anxious to be in power. It was these political parties that time and again competed for his favours and invited him to be Prime Minister. Another was Prem’s own political skills. Although he denied that he was a politician, he was a politician par excellence and a political leader with a masterful touch. The third and perhaps most important factor was Prem’s personal honesty and incorruptibility. This won him widespread support, from the highest institutions of the realm to the common man in the street and the poor farmer in the rice fields. This suggests that Prem’s case was an exception rather than the rule. Indeed, if one examines the list of twelve prime ministers since Sanya Thammasak, who was personally appointed by the king in the aftermath of the October 1973 crisis, one can see that almost all of them, including Anand Panyarachun, were not close to the palace before assuming the premiership. Moreover, apart from Prem, the two who had been closest to the palace, namely, M.R. Kukrit Pramoj and Thanin Kraivixien, were in office altogether for less than two years. If royal political partisanship had always been a clear, present and decisive factor in politics, then the pattern of premierships would have been very different. However, to deny the monarchy’s political partisanship is one thing, but to say that King Bhumibol and the royal family have no political preferences or

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opinions at all is quite another. As evident above, for a very long time the king has consistently held on to a set of political beliefs and values. Therefore, it would indeed be “unnatural” for him not to have political preferences and opinions. If one examines Thai history over the last half century and extrapolates from his speeches and writings over the years, the “composite” picture of a “preferred” political leader which emerges is that of a good, honest, wellintentioned and loyal person, who works hard to maintain the security of the realm and the unity of the people, bring economic prosperity to the country without allowing it to live beyond its means, reduce poverty and the gap between the rich and the poor, and inculcate in the society, especially the younger generations, some of the traditional values, such as discipline, compassion, and moderation. Nor has the king been reluctant to express his opinions, when the need or the occasion arises, although, as Anand pointed out, he has to be careful and refrain from speaking in too specific terms.25 Such opinions can be about persons, governments, or problems, which he deems important but have not been sufficiently well addressed by those responsible. One recent example was his birthday speech in December 2001. With the Thaksin Shinawatra Cabinet in attendance, he warned that the country was heading for “decline” and “catastrophe” and, without naming names, talked about problems of arrogance, intolerance, and double standards. A year later, he focussed on the perils of drugs and urged greater efforts to address the problem. King Bhumibol’s political beliefs and values have prompted some to consider him a conservative. However, while these beliefs and values can be fairly described as conservative, it would be both inaccurate and misleading to call him a “conservative”. The king sees it as his duty to serve and to give. If he thinks that in the discharge of this duty there is a need to expound, preach, and teach traditional or tradition-based beliefs and values, then he would do it. If the very same task requires new thinking, new ideas, new approaches, then he would be equally willing to initiate, innovate, and experiment. His considerable achievements in rural development and crop replacement bear testimony to the progressive side of his nature. So do his lifelong work for the common people, and his constant contacts with them make him more “human” and keep him in closer touch with his subjects than other contemporary monarchs. His interventions in politics may be considered by some to be acts beyond the bounds of the Constitution, aimed at preserving the political status quo, but they also saved lives, prevented catastrophes, and made him unique. Labels do not easily fit great men. Certainly, the “conservative” label does not do him justice. To pay tribute to a modern-day king, who has revived an ancient institution thousands of years old and made it popular, loved, respected, and relevant in an age of rapid change and restless scepticism, a far more fitting title would be the “People’s Monarch”.

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The Future The world does not stand still. All men and institutions go through processes of change and transformation. King Bhumibol has achieved a great deal for both his country and the institution he inherited without forewarning. But his very success has inevitably sown seeds of apprehensions about the future. The line of succession is clear. The 1997 Constitution, like its predecessors, requires that “succession to the Throne shall be in accordance with the Palace Law B.E.2467, together with approval of Parliament” (Article 22). The Palace Law of B.E. 2467, or 1924 A.D., in turn stipulates that “in this era the time has not come for a royal female to ascend the Throne as Reigning Queen with the full powers as the Monarch of Siam. Therefore, it is absolutely forbidden to place any royal female in the Line of Royal Succession” (Article 13). Thus, Crown Prince Maha Vajiralongkorn is the first in line to succeed to the throne. During the last half a century or so, King Bhumibol, the world’s longest reigning monarch, has considerably enhanced the barami of the monarchical institution. This is a tremendous asset for the future. However, if the history of the Chakri dynasty is any guide, the legacy is not absolute; his successors will have to earn their own barami as well in order to make a success of their inheritance. Because the king has set a very high standard of achievement, the challenge of earning their own barami will be all the more difficult for his successors. The Crown Prince is under no illusions about the scale of the task facing him. “I have lots more to learn, lots more to improve in every field”, he confided to journalists in 1987. “This great man has kept this country together over a period of 40 years. That’s more than words can describe”.26 Over the longer term, his ability to learn and win the people’s affections will be a crucial factor in shaping the future of the Thai monarchy. Also vital will be the contributions of the popular Princess Maha Chakri Sirindhorn, who has already been entrusted with key responsibilities related to education, development, art and culture. The inherent difficulty in following a great man’s footsteps is compounded by the fact that Thailand and the world are likely to continue to undergo rapid and far-reaching changes. Life will change, traditions will die, and new values will emerge. How well will the Thai monarchy and the inheritors of the institution cope with such changes? The kingdom’s political scene is likely to become even more complex. Up to now, the pace of political reform has been uneven at best, but the process of democratization is certain to continue over the longer term. The problem is that democracy can be a lottery. It can generate a variety of conflict situations. It can also produce a variety of political leaders: some may be die-hard royalists, others may have their own agenda to pursue; some may be traditional in their values, beliefs and political orientations, others may be socialists, communists or populists; some may remember history, others may conveniently forget it. How well can King Bhumibol’s successors cope with such bewildering

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complexities? Can they continue to act as the nation’s conscience, last-resort conflict manager, and promoter of national reconciliation? How far and how effectively can they respond to competition, say from socialist, communist, or populist leaders, to win the hearts and minds of the rural populace, who provide the backbone of loyalty to the monarchy in the present era? In a future-oriented age of fibre optics, cyber and e-knowledge, can they still encourage the people to remember the past, to remember that once upon a time in their history there were brave kings and warriors, wise princes and nobles, who had saved the kingdom, helped to bring to it no small measures of peace and prosperity, and laid down many of the foundations necessary for its further progress and development? The successful role of the monarchy in resolving the May 1992 crisis should be a source of both joy and apprehension. On the one hand, the king’s acts should serve as a reminder of the Thais’ good fortune in having a traditional institution and a living embodiment of that institution to provide guidance in times of trouble and help lead them out of quagmires of political conflict. On the other hand, the episode should be a cause for serious self-reflection. Well over half a century has passed since the overthrow of the absolute monarchy in 1932, and the Thais have yet to find new institutions to act as frameworks and mechanisms for the exercise of reason in the conduct of their political life. Instead, they still have to rely upon the central institution of that ancien regime for their political well-being and progress. At present, the kingdom continues to be blessed by King Bhumibol Adulyadej’s barami. No blessing lasts forever. The monarchy will remain, but its future capacity to act as the guardian angel of Thailand’s political process may not necessarily be the same. The question is how and how far the nation can build up strong political institutions over the long run to ensure a stronger democracy, and a stronger constitutional monarchy, without having to impose upon the monarchical institution the burden of undue, unrealistic, and ultimately unfulfilled expectations.

NOTES The perspectives contained in this paper are the author’s only and do not represent the viewpoints of any institution with which he is connected. 1. Somchai Poomsa-ard, ed., The Code of Royal Comment (Bangkok: Prachathai Publishing House, 1999), p. 156. 2. In the BBC’s television documentary, Soul of the Nation (London: British Broadcast Corporation, 1979). 3. The kingdom was originally known as “Siam”, and the name was not changed to Thailand until the late 1930s. Purists will not like it, but here, to simplify the matter, only the words “Thai” or “Thailand” will be used. 4. Sombat Chantornvong and Chai-anan Smudavanija, Kwamkid Tang Karnmuang lae Sangkom Thai [Thai Political and Social Thoughts] (Bangkok: Thai Khadi Suksa, 1980), p. 38. (author’s translation). All the translations from Thai texts in this article are by the author, unless stated otherwise.

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5. David Morell and Chai-anan Samudavanija, Political Conflict in Thailand: Reform, Reaction, Revolution (Cambridge, Ma.: Oelgeschlager, Gunn & Hain, Publishers, Inc., 1981), p. 18. 6. Quoted in Neon Snidvongse, “The Development of Siam’s Relations with Britain and France in the Reign of King Mongkut 1815–1868” (Ph.D. dissertation, University of London, 1960), p. 226. 7. Quoted in Tongtor Kluaymai Na Ayudhya, ed., Tosapitrajatham [The Ten Kingly Virtues] (Bangkok: Ton-or Grammy Co. Ltd, 1996), p. 78. 8. Denis D. Gray et al., eds., The King of Thailand in World Focus (Bangkok: The Foreign Correspondents Club of Thailand, 1988), p. 54. The volume contains interviews of the king and members of the royal family conducted by several foreign journalists. To make things simpler, in this article no reference will be made to specific interviews. 9. Ibid., pp. 134–35. 10. Ibid., p. 136. 11. Ibid., p. 135. 12. Ibid., p. 119. 13. Ibid., p. 108. 14. His Majesty King Bhumibol Adulyadej, The Story of Mahajanaka (Cartoon Version) (Bangkok: His Majesty King Bhumibol Adulyadej, 1999), p. 7 (official translation). 15. His Majesty King Bhumibol Aduyadej, Biography of a Pet Dog (Bangkok: Amarin Printing and Publishing House for His Majesty King Bhumibol Adulyadej, 2002), p. 10. 16. Quoted in Kanok Wongtrangan, ed., Naew Phra Rajadamri darn Karnmuang Karnpok-krong khong Prabat Somdej Phrachao Yuhua [His Majesty the King’s Thoughts on Politics and Governance] (Bangkok: Thai Studies Institute and Research Department, Chulalongkorn University, 1988), p. 109. 17. BBC, op. cit. 18. Wongtrangan, op. cit., p. 110. 19. Poomsa-ard, op. cit., p. 158. 20. Office of His Majesty’s Principal Private Secretary (OPPS), A Memoir of His Majesty King Bhumibol Adulyadej (Bangkok: OPPS, 1987), p. 47. 21. Wongtrangan, op. cit., pp. 36–37. 22. Gray, op. cit., p. 138. 23. Anand Panyarachun’s interview by Asiaweek, 3 December 1999, p. 52. 24. Ibid., p. 135. 25. Asiaweek, op. cit., p. 52. 26. Gray, op. cit., p. 174.

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VIETNAM

Southeast Asian Affairs 2003, pp. 313–26

VIETNAM The Stewardship of Nong Duc Manh

Carlyle A. Thayer

Introduction In April 2001, at the Ninth Congress of the Vietnam Communist Party (VCP), Nong Duc Manh replaced Le Kha Phieu as Secretary General. Manh came to office after nine years of service as Chairman of the National Assembly’s Standing Committee. Reform of the National Assembly and its legislative capacity in order to transform Vietnam from arbitrary one-party rule into a “law governed state” has been a major goal of the VCP. It is designed to pre-empt domestic opposition and to maintain the VCP in power. Manh represents the ideological centre of the Vietnam Communist Party. He had served on the Politburo for two full terms before his elevation to the top leadership post. The position of party Secretary General is not as powerful as it once was. The era of the party strongman is long over. It passed with the death of party leader Le Duan in mid-1986 after more than a quarter century at the helm. Since then, no party leader has served two five-year terms. Reformist Nguyen Van Linh only served one term in office (1986–91). His successor, Do Muoi, was elected to serve two terms but stepped down after only six years (1991–97). His replacement, Le Kha Phieu, served out the remaining four years of office but failed to secure election to a full five-year term. As Chairman of the National Assembly’s Standing Committee, Manh has had the task of turning party strategic guidance into pragmatic and workable outcomes. Manh successfully managed the reform of the National Assembly, transforming it from a rubber stamp body into a legislature that has come to play an increasingly important role in Vietnam’s political life. Manh thus brings to his present position not only seniority but extensive experience in political brokerage, such as forging consensus when discordant voices are raised. This chapter reviews political developments in Vietnam

CARLYLE A. THAYER is Professor of Politics, School of Politics, University College, The University of New South Wales at the Australian Defence Force Academy, and concurrently Deakin University’s On Site Academic Co-ordinator at the Centre for Defence and Strategic Studies, Australian Defence College. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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during 2002 with a view towards assessing Nong Duc Manh’s stewardship as party leader. The Policy Process: The Party Since the Ninth Party Congress, the VCP Central Committee has met in executive session seven times. This is well above the average of two meetings per year set out in party statutes. While the frequency of meetings is not without precedent, it does suggest an activist agenda on the part of Secretary General Nong Duc Manh. The previous Central Committee (eighth tenure) met twelve times in five years. As party Secretary General, Manh influences the agenda of each plenary session, including delivering the opening and closing addresses at each meeting. During 2002, the VCP Central Committee held three plenary or executive sessions: the fifth, sixth, and seventh. These are numbered consecutively after each national congress. The Fifth Plenum met from 18 February–2 March and adopted five resolutions.1 These are summarized below. The Fifth Plenum also reviewed policy towards the reform of state-owned enterprises (SOEs) and the campaign for “party-building and rectification” and anticorruption. The Fifth Plenum had to grapple with the difficult question about the role of the co-operative and private sectors as well as SOEs in what is now termed Vietnam’s “socialist-orientated market economy”. In two of its resolutions, the Fifth Plenum gave priority to the development and consolidation of the co-operative economy over the next five years, and decided that the development of the private sector was a longer-term proposition. The Plenum called for taking the collective economy out of the doldrums by encouraging higher growth rates so that the collective economy would constitute a larger proportion of gross domestic product (GDP). The Plenum identified the Vietnam Union of Co-operatives and the Vietnam Fatherland Front as key bodies to implement this new directive. In sum, socialist ideology still biased the party in favour of the state and collective sectors despite recent amendments to the state Constitution that levelled the playing field by giving legal status to the private sector. The Fifth Plenum passed a resolution on the grass-roots political system which it defined as including party, state (administrative), and mass organizations at the local level. While grass-roots units included communes, wards and district towns, priority was to be given to carrying out reform at the commune level. Finally, the Fifth Plenum adopted a resolution on ideological and theoretical work. This referred to a major policy reversal. For the first time, party members were given the green light to engage in private business. The Sixth Plenum, which met on 4–15 July, reviewed a number of resolutions adopted at previous Central Committee meetings stretching back to the tenure of the Eighth Congress (1996–2001). In particular, resolutions on education-training and science and technology development up to 2010,

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and organizational and personnel issues were revisited. The Plenum adopted policy resolutions relating to three major domestic issues.2 First, priority was given to developing education-training and science-technology up to the year 2010. As a result, major reforms of the state education sector are slated take place in the coming years. The Plenum also adopted a number of policy initiatives designed to spur the information technology sector. Key technologies have been targetted for development and foreign direct investment will be encouraged in priority areas. Secondly, the Sixth Plenum endorsed Prime Minister Phan Van Khai’s proposed list of new Cabinet members to be put before the National Assembly for its approval (see below). The Plenum also gave its endorsement to Khai’s recommendations for a reorganization of government departments, including the creation of four new ministries. Thirdly, the Sixth Plenum approved a recommendation adopted by the Politburo to dismiss two of its members, Tran Mai Hanh and Bui Quoc Huy, from its ranks for their involvement in a major corruption scandal (see below).3 The Central Committee recommended that Huy be dismissed as Deputy Minister of Public Security and demoted in rank. The Central Committee also recommended that Hanh be dismissed as Director General of Radio Voice of Vietnam and Vice-President and Secretary General of the Vietnam Journalists’ Association. The Seventh Plenum, which met briefly on 7–9 November, discussed a report on the socio-economic development plan for 2003 and gave its approval to go ahead with two major projects: the controversial Son La hydroelectric power plant and the Ca Mau nitrogenous fertilizer complex. The discussion on socio-economic matters noted with concern “from 2003, when the ASEAN Free Trade Area (AFTA) agreement takes effect with the abolition of non-tariff protection and reduction of import tax levied on numerous items, more pressure will be put on the competitiveness of domestic products”. 4 The Plenum mapped out plans to concentrate on a few key projects by mobilizing domestic resources and encouraging foreign domestic investment. National Assembly Elections In January, the National Assembly’s Standing Committee announced that national elections would be held on 19 May, the anniversary of Ho Chi Minh’s birth. These are the third national elections to be held under the electoral reform laws introduced in 1992. After this announcement, Vietnam began the arduous process of candidate selection. According to a Politburo directive dated 30 January, “an appropriate number of seats must be granted to ethnic minorities, women, youth, non-party members, religious believers and different social classes”. Vietnam’s new candidate selection process placed a high premium on formal qualifications and ethical probity. Each approved candidate had to meet eleven requirements, including political, ethical, and legal standards. Candidates also had to “demonstrate their absolute allegiance to

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the country and its constitution”. It was also indicated that an attempt would be made to increase the number of non-party deputies (which stood at 15 per cent of the outgoing legislature). A record 762 candidates were certified as eligible to run, including 13 independents. This meant a very low 1.5:1 candidate to seat ratio. On the eve of the elections, three candidates were disqualified, including two for their involvement in a corruption scandal. The National Assembly Standing Committee then took the unprecedented step of reducing the number of deputies to be elected from 500 to 498. This was done in order to comply with the 1992 Electoral Law that required all seats be contested. One of the disqualified candidates was Tran Mai Hanh, a member of the VCP Central Committee. The outgoing tenth legislature left an enormous backlog of legislation that must be passed if Vietnam is to successfully make the transition to a “law governed state”. Incoming deputies face not only the daunting task of clearing up the legislative backlog but regularizing Vietnam’s laws to bring them into compliance with the provisions of the Bilateral Trade Agreement signed with the United States. Unless the National Assembly takes prompt action, Vietnam’s bid for membership in the World Trade Organization (WTO) could be delayed. In order to meet this legislative challenge, the 1992 Electoral Law was amended to include a provision requiring that one-quarter of the new deputies must serve on a full-time basis on National Assembly committees based in Hanoi. The first session (eleventh legislature) of the National Assembly was convened in July, immediately after the Sixth Plenum. Nearly 90 per cent of the deputies were VCP members, a disappointment for those who had hoped to increase the number of non-party representatives. Only two independent candidates were elected. The National Assembly deputies re-elected Tran Duc Luong and Phan Van Khai for another five-year term as President and Prime Minister, respectively. The deputies also endorsed Nguyen Van An as Chairman of the National Assembly Standing Committee. Nguyen Thi Binh retired as state vice-president and was replaced by Truong My Hoa, another woman. Prime Minister Phan Van Khai experienced some momentary difficulties in obtaining the National Assembly’s endorsement of his Cabinet nominations and proposed government reorganization. The deputies rejected his nomination of Le Minh Huong as Minister of Public Security. They chose instead to bring in an outsider from the party’s Central Control Commission to head this corruption-tainted body. All other Cabinet nominations were approved. Fifteen new ministers were appointed (see Table 1), including five deputy ministers, who were promoted. Notably, Tran Xuan Gia lost his position as Minister of Planning and Investment because of poor handling of his portfolio. His political demise was signalled in 2001 when he was dropped from the Central Committee. The National Assembly also approved a reduction in the number of deputy

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Vietnam: The Stewardship of Nong Duc Manh TABLE 1 Vietnam’s New Cabinet (8 August 2002) Prime Minister Deputy Prime Ministers Ministers (or equivalents) Agriculture and Rural Development Construction Culture and Information Education and Training Finance Foreign Affairs Industry Internal Affairs* Justice Labour, War Invalids and Social Affairs Marine Products National Defence Natural Resources and Environment* Planning and Investment Post and Telecommunications* Public Health Public Security Science and Technology (renamed) Trade Transport and Communications State Bank of Vietnam State Committee for Physical Training and Sports Inspector General State Inspectorate Director, Government Office State Committee for Ethnic Minorities (renamed) State Committee for Population, Family and Children

Phan Van Khai Nguyen Tan Dung Vu Khoan* Pham Gia Khiem Le Huy Ngo Nguyen Hong Quan* Pham Quang Nghi Nguyen Minh Hien Nguyen Sinh Hung Nguyen Dy Nien Hoang Trung Hai* Do Quang Trung* Uong Chu Luu* Nguyen Thi Hang Ta Quang Ngoc Pham Van Tra Mai Au Truc* Vo Hong Phuc* Do Trung Ta* Tran Thi Trung Chien* Le Hong Anh* Hoang Van Phong* Truong Dinh Tuyen* Dao Dinh Binh* Le Duc Thuy Nguyen Danh Thai Quach Le Thanh* Doan Manh Giao Ksor Phuc* Le Thi Thu*

*New ministry and/or new minister

prime ministers from four to three. Nguyen Manh Cam and Nguyen Cong Tan were dropped, and Vu Khoan was promoted to Second Deputy Prime Minister. Khoan has risen in recent years. He handled the sensitive negotiations with China over a land border treaty. Then, as Minister of Trade, he successfully negotiated the Bilateral Trade Agreement with the United States. The deputies challenged Khai’s proposal to create four new ministries (Ministry of Natural Resources and Environment, Ministry of Post and Telecommunications, Ministry of Internal Affairs, and a ministerial-level Committee for Population, Family and Children).5 The deputies argued that there was an overlap between existing bodies and the government should reduce the size of the bureaucracy, not increase it. The Prime Minister was charged with reporting back on how he intended to prevent any overlap between existing ministries and the new ones.

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It was later reported, for example, that the new Ministry of Internal Affairs would be given responsibility for the management of correspondence and documentation relating to labour, scientific organization, and administrative procedures in state agencies as well as the pay system for the armed forces.6 In September, Prime Minister Khai announced the demarcation of responsibilities of his three deputy prime ministers.7 Nguyen Tan Dung, the First Deputy Prime Minister, was placed in charge of directing and supervising the performance of the industry sector, posts and telecommunications, agriculture, marketing, construction, transportation, state-owned enterprise reform, natural resources and environment, inspections, countering corruption, natural disaster prevention and salary reform. Overall, Dung was given oversight for supervising eleven ministries or equivalent state agencies. He is also expected to stand in for the Prime Minister when the latter is absent overseas. Deputy Prime Minister Vu Khoan was assigned responsibility for foreign affairs, global economic integration, trade, trade fraud, tourism, border issues, human rights, and religion. In sum, Khoan was given oversight for the ministries of Foreign Affairs and Trade and the Committee for Ethnic Minority People. Deputy Prime Minister Pham Gia Khiem was given responsibility for supervising the work of seven ministries and equivalent agencies relating to science and technology, education and training, culture, the arts, information, media, health services, labour and population. The Nam Cam Scandal On 12 December 2001, a special task force of the General Department of the People’s Police (Ministry of Public Security) arrested crime boss Truong Van Cam on ten charges, including murder, drug-trafficking, prostitution, gambling, extortion, and fraud. Twelve other accomplices were also arrested. The police investigation soon revealed an organized criminal network that involved more than one hundred and fifty persons, including several high-ranking party and state officials. Cam’s network extended from Ho Chi Minh City to Hanoi, Hai Phong, and other provinces and cities.8 This episode was commonly referred to in the popular press by the defendant’s nickname, Nam Cam. Nam Cam had been involved in criminal activities such as gambling, prostitution, and extortion for several years until his arrest and conviction in May 1995. Nam Cam was sentenced to three years in a re-education facility. He was released nine months early as a result of the intervention by friends in high places.9 In 1996, Tran Mai Hanh, then chief editor of Nha Bao va Cong Luan newspaper, orchestrated a press and letter writing campaign aimed at securing Nam Cam’s early release. These pressure tactics worked, and in September 1997, Hoang Ngoc Nhat, a Major General in the police force, signed the authorization releasing Nam Cam eight months ahead of schedule.10 Nam Cam’s criminal activities, his high-level political connections and re-arrest aroused intense public interest. In January 2002, for example,

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six hundred intellectuals in Ho Chi Minh City signed a letter addressed to the party Secretary General, the Minister of Public Security, and the Secretary of the Ho Chi Minh City Party Committee urging them to take firm action against officials who had shielded Nam Cam. Their letter argued, “[w]ithout the protection of corrupt officials, the Nam Cam clique could not have existed. The gang is the offspring of corrupt officials, who were also efficient henchmen in recent times.”11 Vietnamese language newspapers led the charge to publish details.12 This led to speculation by political observers and analysts that the Nam Cam scandal had become a political football in the jockeying for leadership positions that would follow the national elections in May.13 There were rumours, for example, that higher officials or their relatives, had received payoffs from Nam Cam. In mid-year Prime Minister Phan Van Khai promised, “[a]nyone, regardless of his/her social status, who has been involved in the [Nam Cam] case, will be brought to justice”.14 These sentiments were echoed shortly after by Truong Vinh Trong, chief of the Central Committee’s Internal Affairs Committee. Trong warned, “[t]he consistent policy of the party is to root out and deal strictly with the wrongdoings of state officials and party members who are involved in or implicated in the Nam Cam case no matter who they are”.15 In June, the VCP Politburo and Secretariat ordered three party committees (the party committees of the Public Security Ministry, People’s Supreme Procuracy and Executive Board of the Ho Chi Minh City Party Committee) and six senior officials (Buy Quoc Huy, Hoang Ngoc Nhat, Do Nam, Tran Mai Hanh, Le Thanh Dao and Pham Si Chien) to explain their role in the Nam Cam scandal.16 From 18–19 June, the leadership of the Ho Chi Minh City Party Committee held a meeting to review the Nam Cam case under the chairmanship of Nguyen Minh Triet, Secretary of the Ho Chi Minh City Party Committee and a member of the VCP Politburo. Huy was ordered to undergo self-criticism and was further required to submit a report outlining his family’s personal and financial links to Nam Cam and provide an inventory of his possessions and their value. In reaction to public interest, the media gave the Nam Cam scandal unprecedented coverage. This prompted immediate intervention by senior party officials to prevent matters from getting out of control. In June, Nguyen Khoa Diem, head of the VCP Central Committee’s Culture and Ideology Commission, warned newspapers that they had ignored guidance in publishing reports on the Nam Cam scandal and speculating on links to high-level officials. Diem said, “[s]ome stories and interviews have revealed internal matters of state organs, which is not allowed. The media must execute the principle of observing the party’s leadership.”17 The media were advised not to expose secrets and cause internal divisions. In July, a meeting was held between the VCP Secretariat, the editors-in-chief of Vietnam’s media organizations and the head of law enforcement agencies. Hong Vinh, the permanent deputy head of the Culture and Ideology Commission, pointed

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out “mistakes and errors” committed by some media organizations. He noted, “[t]hese include exaggeration, excessive information, excessive criticism, violation of the ordinance on confidentiality and even false information as well as careless reports”.18 In August, the VCP announced the expulsion of twenty-two members from the Ho Chi Minh City party organization for their connections with Nam Cam. Twelve other party members, including nine policemen, were detained. The police officers were specifically dismissed for their involvement in the Nam Cam scandal.19 Included were one senior lieutenant colonel, two lieutenant colonels, three majors, two captains and one lieutenant. This brings the number to more than forty police officials who have been suspended, half of whom have been demoted. Charges have been laid against fourteen of the total. Another twenty are awaiting disciplinary action.20 In September, the VCP Secretariat expelled Pham Si Chien and Hoang Ngoc Nhat from the party. A decree signed by President Tran Duc Luong dismissed both from their government posts. In October, the police task force investigating this scandal, submitted a 600-page dossier to the People’s Supreme Procuracy outlining their investigation.21 The People’s Supreme Procuracy handed down indictments against 155 persons in November.22 Truong Van Cam was charged with seven offences, including murder, assault, gambling, organizing gambling, bribery, aiding and abetting criminals, and organizing illegal emigration. Twenty-four charges were laid against the other defendants, ranging from murder, gambling, extortion, bribery, falsification of case files and “irresponsibility”. Among this number are nineteen government officials, fourteen police officers, three prosecutors, and two journalists. Nam Cam’s trial has been repeatedly set back. Initially, police had hoped to go to court in July. Then a trial date was set for November,23 then December.24 It is currently scheduled for either January or May 2003.25 According to The Economist, “[s]uspicions persist that the Nam Cam affair might go even higher than the two Central Committee members — but the investigation will not”.26 During the year, the whiff of scandal touched several leading political figures. However, the VCP leadership took steps to prevent any member of the party’s inner élite from being affected. For example, former Prime Minister Vo Van Kiet became entangled in the Nam Cam affair soon after it surfaced. In 1995, Prime Minister Kiet was reported to be furious when he ordered an investigation into Nam Cam but discovered that the Ho Chi Minh City police had no files on Nam Cam’s criminal network. According to one account, it was Kiet’s initiative that eventually led to Nam Cam’s arrest. As the Nam Cam scandal developed, the press speculated on whether Kiet had seen documents recommending Nam Cam’s early release. Kiet denied he ever saw such documents. “I remember I was not told of the two letters”, he stated. Kiet also noted that he would have rejected the recommendations had he seen them. “It was not acceptable to release Nam Cam”, he said.27 Kiet’s assistant at that

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time, Nguyen Quoc Bao (currently the Ambassador to Uzbekistan) has been recalled to answer whether he passed the documents to the Prime Minister. Nam Cam was active in Ho Chi Minh City over the period in which there were three municipal party secretaries: Vo Tran Chi (1986–96), Truong Tan Sang (1996–2000), and Nguyen Minh Triet. All three individuals were Politburo members. Chi has since retired. Triet, who has ambitions to succeed Phan Van Khai as prime minister, has been active in pushing the anti-corruption cause. Sang’s name has been kept out of press speculation. It remains to be seen whether any of these three senior party leaders will be held culpable for negligence. Two Politburo members have suffered collateral political damage. There have been rumours circulating that Nguyen Van An, or his family members, had accepted gifts and favours from Nam Cam, and allegedly an attempt to protect Pham Si Chien from police investigation into the Nam Cam affair.28 When Nguyen Van An’s name was advanced for the position of Chairman of the National Assembly Standing Committee, ninety-nine deputies unsuccessfully voted against him. The deputies were successful, however, in blocking the reappointment of Le Minh Huong as Minister of Public Security. This action indicated that the deputies felt Huong should bear some of the blame for not weeding out widespread corruption in his ministry, which has so far claimed two deputy ministers.29 The Nam Cam scandal holds the potential to tarnish Ho Chi Minh City’s reputation as a progressive centre for economic renovation. The careers of individuals like Nguyen Tan Dung (First Deputy Prime Minister), a former official in the Ministry of Public Security, could suffer collateral damage as well. Cyber Dissidents Throughout the year Vietnamese security officials were active in taking action against a new breed of political activists — the cyber dissident. In 2002, six cyber dissidents were arrested for posting material on the Internet which the Vietnamese regime deemed illegal. Other prominent critics faced police harassment. The first victim, Nguyen Khac Toan, was arrested in January while posting pro-democracy material on the Internet. In December, Toan was sentenced to twelve years in jail (to be followed by three years of house arrest) on charges of espionage. The second victim was Bui Minh Quoc who was placed under house arrest in Dalat and charged with possessing anti-government literature in January. Quoc had been active in researching and posting material on the Internet charging government officials with making territorial concessions to China during the course of land border negotiations in the late 1990s. Le Chi Quang was the third victim. He was taken into police custody in February while uploading information at an Internet café in Hanoi.30 Police also seized his computer and some documents from his house. Quang was

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charged with sending “dangerous information” overseas and detained in Ha Dong province. Police acted on information provided by an Internet Service Provider that Quang was using a computer to communicate with overseas “reactionaries”. Quang, like Quoc, was a critic of the 1999 Sino-Vietnamese land border agreement. He expressed his views in an essay entitled, “Beware of the Northern Empire”, that he posted on the Internet. On 8 November, Quang was tried and sentenced to four years in prison (plus three years probation) under Article 88 of the Criminal Code that bans the distribution of anti-government information.31 On 8 March, police raided the home of the fourth victim, Tran Khue, in Ho Chi Minh City and seized documents (including his personal manuscripts), a camera, cell phones, and his computer and printer. Khue was detained in connection with an open letter he had sent to China’s President, Jiang Zemin, on the eve of Jiang’s February visit to Hanoi, criticizing the 1999 SinoVietnamese land border agreement. Khue’s letter was also posted on the Internet. Khue was placed under house arrest in March under Administrative Directive 31/CP. On 25 March, police raided the home of Pham Hong Son, the fifth victim, and seized his computer equipment and personal documents. He was questioned about a series of pro-democracy articles he had translated and posted on the Web, including an essay, “What is Democracy”, taken from the U.S. State Department’s Website. Earlier, Son had sent one of his articles, “Promising Signals for Democracy in Vietnam” to party Secretary General Nong Duc Manh. Copies were also dispatched to several Vietnamese language newspapers. After the police raid on his home, Pham posted an open letter on the Internet protesting their actions. He was detained by police in order to “clarify the level of his infringement”. Son was later charged with sending and receiving anti-state and anti-party documents. On 20 July, police searched the home of Nguyen Vu Binh, the sixth victim, viewed his computer files, read his e-mails and printed out personal documents. Binh was then taken into brief custody for questioning about “actions that endangered security and public order”. Binh was one of the signatories of the 6 July petition (see below). Binh had also taken part in a recent BBC interview series featuring prominent dissidents and had provided written testimony for a U.S. Congressional Human Rights caucus.32 On 6 July, twenty-one dissidents, including former members of the party, retired government officials, military veterans, and relatives of detained journalists, sent a petition to the National Assembly and Vietnamese leadership calling for political reforms, a multi-party democracy, and the release of political prisoners.33 The petition called on the newly elected National Assembly to create a constitutional court to review anti-democratic legislation and bring Vietnamese domestic law into compliance with the United Nations Covenant on Civil and Political Rights. Furthermore, the petition called for legal

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safeguards to prevent state repression, the establishment of an independent anti-corruption body, and the publication of the full text of the land and maritime border agreements signed with China in 1999 and 2000. Other dissidents suffered from police harassment. In September, for example, police searched the Ho Chi Minh City home of internationally prominent pro-democracy activist Dr Nguyen Dan Que. After four hours of interrogation, police confiscated his writings and other documents. Que refused to accompany the police back to their station when they failed to produce an arrest warrant. Police reportedly threatened Que with detention for circulating his writings on human rights and democracy. Dissident Pham Que Duong was subject to repeated videotaped interrogation sessions over a two-week period during September–October.34 Vietnam’s measures against cyber dissidents is part of a larger attempt by the state to control the Internet. In June, Prime Minister Phan Van Khai ordered a nationwide inspection of the Internet, justifying his actions that children could be morally harmed. No doubt Khai and others were concerned with the use of the Internet by cyber dissidents as well. The Ministry of Culture and Information has taken the lead as the most proactive government body in advocating a tightening up of government regulations on access to and the use of the Internet in Vietnam. In June, for example, the Ministry proposed that the owners of Internet cafes be held responsible for monitoring their customers’ usage. The Ministry also urged the Prime Minister to take action to enforce regulations prohibiting access to pornographic sites and warned that state secrets were being transmitted on the Internet. The government then instructed authorities in Ho Chi Minh City to strengthen controls against the dissemination of anti-government materials on the Internet by “hostile forces”. In August, the Ministry of Culture and Information commenced inspections of Internet access points in Hanoi, Hai Phong, Da Nang, Ho Chi Minh City, and Can Tho. The Directorate General of Posts and Telecommunications requested provincial authorities to strengthen inspection and control of public Internet cafes and warned that severe punishments would be meted out to violators who downloaded and spread “poisonous and harmful” information.35 Government ministries and agencies were asked to compile a list of all banned Internet sites and services. On 7 August, the Ministry of Culture and Information temporarily closed a popular Hanoi Website launched by VVT Innovative Solutions Co. Ltd. for failure to secure proper permission to launch the site. 36 VVT was charged with permitting the publication of articles with “inaccurate information” that violated the Press Law and Government Decree No. 55 on managing, providing, and using Internet services. Authorities had taken particular exception to material on a forum page that criticized the government for reportedly making concessions to China during negotiations on a border treaty and material that discussed corruption and the VCP, relations with the United States, and

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demands for political change. A spokesperson for the Ministry stated, “[i]n recent weeks, the forums on the website have been posting articles and messages that promote Nazism, violence, a multi-party political system and ideological pluralism”.37 In August, following the inspection of Internet access sites in sixty-one provinces and cities, the Ministry of Culture and Information revealed plans to tighten up on Internet controls, including reinforcing firewalls to block material deemed subversive and harmful to national security.38 The Ministry sought to direct Vietnam’s only Internet gateway, Vietnam Data Communications Co., to block websites based on a list to be drawn up and regularly updated by the Ministry of Public Security. The Ministry of Culture and Information also suggested that Internet café owners obtain special licences requiring checks into their family, professional, and financial backgrounds. The Ministry also suggested that Internet service providers be held responsible for blocking anti-government and pornographic websites. In October, the Ministry of Culture and Information issued a decision on the licensing and creation of websites.39 All businesses and organizations were now required to obtain a licence before setting up new websites. Internet content providers were only allowed to distribute information for which they were licensed. They will also have to keep detailed records of contact information. Internet content providers are also forbidden from posting information that “incites people against the government” or causes “hostility between different ethnic groups”. Vietnam’s attempt to restrict Internet usage is in contradiction to the Sixth Plenum’s goal of using information technology to spur economic development. Attempts by the Vietnamese state to censor the Internet invariably will mean a restriction in the amount of information that can freely circulate. This will handicap Vietnam’s development effort especially in the light of plans to further the development of electronic newspapers and Internet services as means of connecting Vietnam to the outside world, including an estimated two million overseas Vietnamese. Vietnam currently has twenty-one e-newspapers and e-magazines and two e-publishing houses.40 Manh’s Stewardship: An Overview Secretary General Nong Duc Manh came to office after a period of malaise and disenchantment with the leadership of Le Kha Phieu. Manh has taken determined steps in his first two years in office to create an effective leadership team at the national level to put Vietnam’s reform programme back on track. In particular, Manh has given Prime Minister Khai room to implement his policies. During the period of policy drift and political immobilism under Le Kha Phieu, Khai became so frustrated that he twice offered his resignation. Khai has now begun to play a more proactive role as Prime Minister in initiating policy and advancing to Cabinet rank a leadership team that appears better qualified than any of its predecessors.

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Nong Duc Manh has sought to improve the capacity of the party and state to set policy and effectively administer under the rubric of “party-building” and creating a “law governed state”. Manh has strongly pushed for the adoption of procedures to make party officials more accountable. Most notably, they are now required to declare their financial and property interests. Manh has been a strong supporter of Vietnam’s efforts to end pervasive corruption in party and state bodies. The issue of corruption has proved a major challenge. Not only is corruption endemic, but as the Nam Cam scandal revealed, it touches the highest levels of Vietnam’s one-party state. Manh has effectively advanced the Ninth Congress’ socio-economic programme of industrializing and modernizing Vietnam. He has supported economic growth, infrastructure development, and poverty reduction. He has pushed hard to step up the pace of equitization of state-owned enterprises. Early in his tenure, he supported the controversial Son La hydroelectric power plant. In 2002, Manh demonstrated his political brokerage skills by accommodating objections to the Son La plan by National Assembly deputies. So far, Nong Duc Manh’s leadership style has attracted support from various factions within the party and kept ideological friction in check. At the Fifth Plenum, for example, Manh was able to get endorsement for proposals to advance both the collective and private sectors. Manh has also backed efforts to restore co-operative enterprises while at the same time supporting the right of party members to engage in private commerce. At the Sixth Plenum in July, Manh successfully articulated a new educational and development strategy designed to harness technology. Manh has pursued a political reform programme designed to make the state apparatus more efficient and subject to law. Creating a “law governed state” is not the same as political liberalizaton. Under Manh’s watch, political and cyber dissidents have been harassed if not subjected to repression. Developments in Vietnam since Nong Duc Manh assumed the mantle of party Secretary General indicate that the prospects for political change in Vietnam lie mainly within the party and state bureaucracies. There is little evidence to suggest that Vietnam’s pro-democracy dissidents or an emerging entrepreneurial class will shake the foundations of one-party rule in the near term. Manh’s objective is to maintain the Vietnam Communist Party in power, not bring about its demise.

NOTES 1. Vietnam News Agency, 18 February 2002; Voice of Vietnam, 2 March 2002; and “Communist Party of Vietnam Fifth Plenum Communiqué”, All references to Vietnam News Agency have been taken from 2. Vietnam News Agency, 4 July, 15 July, and 22 August 2002; and Nhan Dan, 23 August 2002, at 3. Clare Arthurs, BBC World Service, 31 May 2002.

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326 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39.

40.

Carlyle A. Thayer Vietnam News Agency, 9 November 2002. Vietnam News Agency, 5 August 2002. Vietnam News Agency, 26 August 2002. Lao Dong, 18 September 2002; and Nhan Dan, 19 September 2002. Vietnam News Agency, 27 June 2002. Ben Rowse, Agence France Presse, 15 July 2002. Tuoi Tre, 15 November 2002. Quoted in the Financial Times, 31 January 2002. David Thurber, Associated Press, 26 September 2002. David Brunnstrom, Reuters, 22 May 2002; and Reuters, 21 June 2002. Vietnam News Agency, 27 June 2002. Ben Rowse, Agence France Presse, 16 August 2002. Vietnam News Agency, 19 June 2002. Phap Luat, 20 June 2002. Vietnam News Agency, 3 July 2002. Agence France Presse, 6 August 2002. Hanoi Moi, 15 August 2002. Vietnam News Agency, 2 October 2002. Vietnam News Agency, 26 November 2002. Deutsche Presse-Agentur, 16 August 2002. Agence France Presse, 2 October 2002; Deutsche Presse-Agentur, 8 October 2002; and Vietnam News Agency, 4 November 2002. Deutsche Presse-Agentur, 20 November 2002; and Vietnam News Agency, 20 November 2002. “Vietnam’s corruption”, The Economist, 14 September 2002. Tuoi Tre, 21 May 2002; and Associated Press, 23 August 2002. Ben Rowse, Agence France Presse, 16 August 2002. Agence France Presse, 2 October 2002. Reuters, 24 October 2002. Tini Tran, Associated Press, 8 November 2002. BBC News, World Edition, Asia Pacific, 23 July 2002; and Deutsche Presse-Agentur, 27 September 2002. “Petition to the XI Session of the National Assembly”, released by the Vietnam Committee on Human Rights, Paris, 16 August 2002. “Vietnam: New Threats to Free Expression”, Human Rights Watch Asia, Press Release, 9 October 2002. Tuoi Tre, 3 August 2002. The Website in question was: See Vietnam News Agency, 13 August 2002. Deutsche Presse-Agentur, 2 August 2002. Agence France Presse, 16 August, and 7 October 2002; and Associated Press, 16 August 2002 . “Decision by the Minister of Culture and Information Regarding the Issuance of the Statute on Management and Granting of Licenses for Provision of Information and Creation of Websites on the Internet”, No. 27/2002/QD-BVHTT, 10 October 2002. See also, Lan Anh, “Closer Eye on Web Content”, Saigon Times Daily, 17 October 2002. Vietnam News Agency, 19 September 2002.

© 2003 Institute of Southeast Asian Studies, Singapore

Southeast Asian Affairs 2003, pp. 327–38

SOE EQUITIZATION IN VIETNAM Experiences, Achievements, and Challenges

Vu Quoc Ngu

Overview of the SOE Reform in Vietnam The first state-owned enterprises (SOEs) in Vietnam were established by nationalization of privately owned enterprises and development of new SOEs from the 1950s. Given the backward state of its agrarian economy, these SOEs were constructed according to the Soviet model as this model, at that time, was perceived to be the quickest way to develop the economy. Generous investment in the SOE sector during this period brought about impressive economic results. The high rate of growth of industrial production, however, had masked the underlying defects of the SOEs: inefficiency and dependence on foreign aid. In spite of these defects, this model was again applied to the SOEs in the south of Vietnam after the unification of the country in 1975. As a result, despite a large amount of investment and the rapid expansion of the SOE sector, the economy experienced a crisis in the second half of the 1970s.1 The threat of economic collapse forced the Vietnamese Government to review the economic strategy it was pursuing. Consequently, different policies were introduced from the early 1980s, which relaxed the rigidity of compulsory state plans.2 The SOEs were allowed to produce some non-planned products, sell them in the free market and enjoy a share of the realized profits. The changes had a strong impact on the behavior of SOEs towards production efficiency. However, the positive impact was short-lived as reform measures were partial in nature and were carried out within the frame of a centrally planned economy with the ultimate aim of strengthening that mechanism. These partial reform measures contributed to inflation during this period. The failure of the subsequent price, wage, and money reform in September 1985 directly caused hyperinflation with prices increasing by nearly 800 per cent in 1986 alone. The negative macroeconomic impact of this hyperinflation induced the next wave of reform in the second half of the 1980s. In December 1986, the Sixth National Congress of the Communist Party of Vietnam decided to abandon the centrally planned mechanism and replace it with a market mechanism to develop a market-oriented economy in Vietnam.

VU QUOC NGU is a researcher at the Academy of Finance, Vietnam. Reproduced from Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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With this reorientation, several new policies were introduced, especially from the late 1980s, which gradually eliminated elements of the centrally planned economy and developed new institutions of a market-based economy. SOEs were given more autonomy in their operation. They could still share in the realized profits, which were now calculated based on true costs. Nevertheless, while economic activities were strongly stimulated in many SOEs, the high turnover of management also caused a large number of SOEs to experience difficulties and incur losses.3 In the context of tight budgets, following the cut-off of aid from the Soviet Union and Eastern European countries, the government decided to downsize the SOE sector by closing down and merging inefficient SOEs. As a result, the number of SOEs was halved to around 6,000 by April 1994.4 In 1994, certain SOEs were further reorganized into much bigger entities — the so-called General Corporation 90 and 91. The divestiture of SOE ownership which was initiated in 1992 has also been carried out in the forms of equitization, transferring, contracting, leasing, and outright selling. The decisive reform measures during this period brought about impressive growth in the SOE sector.5 However, from the mid-1990s, the SOEs have been facing more competition from domestic and foreign private firms in Vietnam, especially after the Asian financial crisis in 1997, which caused several of them to operate with chronic losses.6 The reform of SOEs during this period was somewhat slowing down until recently, when a number of strong measures were initiated and implemented.7 The equitization process has also picked up momentum during this period of time. The SOE Equitization Process and Its Initial Achievements The SOE equitization in Vietnam was first initiated in 1992 following Directive 202 on 8 June 1992 from the Prime Minister. By definition, the equitization is intended to mobilize capital among SOE employees, individuals, domestic and foreign economic organizations, and investors to introduce technology, further develop the firm, enable the capital contributors to become real masters of the firm, and strengthen the supervision of society over the firm’s operations. It is, therefore, different from the privatization or outright sale, commonly seen in Western or other transitional economies. The SOE equitization process can be divided into two periods: the pilot period from 1992 to 1996 and the extended period from 1996 up to now. Equitization in the pilot period only covered the small and medium-sized SOEs, in which the government did not need to retain full ownership and the workers of the enterprises were willing to participate. Nevertheless, over the five-year period, only five SOEs were equitized. Many of the registered SOEs withdrew from participating in the pilot programme in the belief that many of the benefits associated with being an SOE would be lost after the equitization. The issuance of Government Decree 28 on 7 May 1996, which marked the end of the pilot period, was supposed to speed up the equitization process.

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Nevertheless, there were only twenty-five SOEs equitized by June 1998. The small number of SOEs equitized was widely seen as the result of technical difficulties in the valuation of the SOE property; lack of detailed guidelines; a number of inappropriate regulations as well as the unwillingness on the part of SOE managers and workers to participate. Government Decree 44, which was issued in June 1998 to replace Decree 28, provided more liberalized regulations regarding specific incentives for the firm and its employees; decentralization in the implementation of the equitization process; as well as the type of SOEs in which the government needs to retain 100 per cent ownership. As a result, by the end of 1999, 370 SOEs completed equitization. Even though this process somehow slowed down in 2000 and the first half of 2001 in the expectation of the new guidelines, the total number of equitized SOEs increased to around 1,000 by the end of 2002. Of this total number, SOEs in industry and construction accounted for about half; SOEs engaged in trade activities accounted for about a third; and the rest were SOEs in transportation, agriculture, and aquaculture.8 The total number of SOEs divested, of which equitized SOEs dominated, is depicted in Figure 1. A number of studies on the performance of the equitized SOEs generally concluded that there have been significant improvements in the performance of the SOEs after equitization. In an earlier report,9 when compared with the pre-equitization level, the first sixteen equitized SOEs were shown to have increased their capital by 299 per cent, turnover by 237 per cent, after-tax profits by 305 per cent, and contributions to the State Budget by 260 per cent.

FIGURE 1 Total Number of SOEs Divested

300 250 200

Equitization Outright sale Assignment Liquidation

150 100 50 0 1998

1999

2000

2001

SOURCE: World Bank (2002).

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9 months of 2002

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This trend was confirmed in another report by the Mekong Project Development Facility (MPDF) on the performance of the first fourteen equitized SOEs. In this report, the equitized firms were reported to be “doing well, and State revenues through taxes had increased in comparison with the pre-equitization period and there had been no labour lay-offs”.10 Another more recent survey of 100 equitized SOEs by the Vietnam General Confederation of Labour showed that, compared with pre-equitization, on average the number of workers in the equitized SOEs had increased by 13 per cent, and workers’ income had increased by 20 per cent.11 A latest survey, which covered 422 SOEs equitized before 2001, reported that around 90 per cent of the equitized SOEs indicated that their financial performance had improved and only 3 per cent, said that it had deteriorated after equitization. Sales in these firms also grew at almost 20 per cent per year, employment at 4 per cent, wages at 12 per cent, and assets at 21 per cent.12 There had also been significant changes in several other aspects of the operations of the equitized firms. Large improvements in incentives were reported, especially with regard to the motivation of workers to work hard for the firm’s success. More autonomy for managers to pursue profits and efficiency had also been indicated. After equitization, the board of management had more power in terms of the appointment of the Director. This applied to all firms regardless of how much ownership the government had in the firm.13 Challenges Ahead with the SOE Equitization Process In spite of the obvious improvements in the operation and the performance of the SOEs after equitization, many obstacles remain which are significantly slowing down the whole process. The obstacles are seen not only before and during the equitization process, but also after the process. Unwillingness by the manager and the employees of the SOEs to participate in the exercise is cited as a significant problem before the equitization process. This derives from the fear of losing privileges associated with being an SOE, including resistance from directors and vested interest groups fearing loss of power and benefits and from the workers who fear loss of jobs. The operating environment favours the SOEs. Although on a declining trend, the proportion of credit given to the SOEs is still substantial especially in comparison with their sector share in total GDP (Table 1). The SOEs are shown favour in access to land, export quotas, and also tax treatment. Privileges of this kind have created substantial rents for the SOEs, which would certainly disappear with equitization. Consequently, the SOE managers, employees, and other vested interest groups resist the process or try to delay it as long as they can. In addition, the still mixed perception of the leading role of the State sector among many SOE directors has somehow been used as an excuse to justify their claim that their firms be retained in the government’s hands.

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SOE Equitization in Vietnam: Experiences, Achievements, and Challenges TABLE 1 Credit to SOEs and the Share of State Sector in GDP

Loans to SOEs: In trillion of dong In percent of credit to the economy Share of State sector in GDP*

1997

1998

1999

2000

2001

31.0 49.6 40.5

38.1 52.4 40.0

54.3 48.2 38.7

69.9 44.9 38.5

79.7 42.1 38.6

NOTE: Due to the unavailability of data on the share of SOEs, the share of state sector, which combines the share of the SOEs and the government administration, is used instead. The share of SOEs, would therefore, be smaller. SOURCE: General Statistical Office 2002.

One of the significant obstacles during the equitization process included the difficulty in valuing SOE property. The property market in Vietnam is still at an infancy stage. Land, as stated in the law, belongs to all the people, and the government, on behalf of the people, manages the use of land. Land market, therefore, does not exist; only market for the right to use the land exists and this has not been fully developed due to distortions and sometimes inconsistencies in different regulations. The valuation of machinery also poses difficulties since the book value of the machinery, which is supposed to be the value of the equitization, is much higher than the market value in many cases. There have been cases where the manager colluded with the workers to undervalue a firm’s properties in order to lower the face value of the shares, which were eventually acquired by them. While the property of an SOE can eventually be given a market value, as it is effectively a technical issue, the debt of SOEs is indeed an obstacle, and it virtually holds up the equitization process. The equitized firm will become another entity and the equitization process will, therefore, be blocked unless the firm’s debts are resolved, as otherwise creditors would lose their money. Most of the debts of the SOEs are with the state banks and as of September 2002 these debts accounted for 50 per cent of the banks’ loan portfolios.14 It is admitted that several billions of dollars of these loans are non-performing, even though the precise figure is controversial, depending on the way the nonperforming loans are defined. The SOEs also owe each other in the so-called “triangle debts”, in which the SOEs are the creditors and debtors at the same time. The process of resolving the problem of the “triangle debts” is believed to be far from completion. Another issue is how to deal with the surplus workers during the process of ownership reform. SOEs in Vietnam have long been seen to employ more workers than needed as a result of the centrally planned mechanism and its legacy of guaranteed employment. According to official statistics, surplus workers in the SOE sector total about 8 per cent,15 but this proportion could be as high as 40 per cent.16 This figure was revealed when current SOE directors were asked how many workers they would recruit if they had none. In the previous

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regulation, the potential owners of the equitized firms were supposed to guarantee the jobs for all of the existing employees in the first twelve months after the equitization process had been completed, presumably to ensure the smooth transition of the newly equitized firms and to avoid the social instability caused by massive unemployment. This may be alright in the case of SOEs with small numbers of redundant workers. However, in SOEs where a large proportion of workers are considered to be in excess, the regulation discourages potential investors from acquiring shares of such a firm as the cost of operation of the equitized firm will continue to be high with the presence of excess workers, thus lowering its potential profits. This controversial regulation, nevertheless, has been relaxed recently, probably due to its negative impact on the equitization process, as witnessed by the small number of SOEs equitized. However, given the sheer number of SOE workers expected to be released during the SOE reform process in the coming years, there should be viable solutions to the excess worker problem. Among the frequently discussed solutions, pursuing a labour-intensive industrialization strategy and encouraging the development of the private sector appear to be the most realistic. Besides these well-known obstacles, many unforeseen issues have emerged after the SOEs have completed their equitization process. The relationship between a newly equitized firm and the government has not been clearly established in several areas. From the owner’s point of view, it is still unclear who is going to represent the government in firms where the government holds shares. Before equitization, the “line ministries” or “people’s committees” — being the establishing agencies — owned the entire firms and the Ministry of Finance was charged with the responsibility of controlling financial matters. After equitization, it seems that these bodies are still performing the same role. However, this arrangement does not appear to be tenable due to possible conflicts of interests. There are suggestions that the role of the owner should be played by a special body called the “financial investment company” under the Ministry of Finance. From the regulator point of view, there is still confusion over how the newly equitized firms should be treated. Examples can be found in the firms where the government is the dominant shareholder and the firms are expected to operate under both the SOE law and enterprise law, which are not entirely compatible with each other. Furthermore, there is no clear understanding on how the government agencies should perform their regulatory function over the equitized firms. In addition, many firms still report excessive intervention by the government agencies in their operations, even in remuneration matters. Further, almost all firms found that they were treated worse after equitization. The difficulties faced ranged from securing loans from banks, especially from state banks, tax payment with the tax authority, to lack of information about new policies. It is also reported that there has not been much change in the management structure in almost all firms. The continuation of this tendency could entail the failure of the main objective of equitization

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— which is to enhance the performance of the firm — due to the problem of the so-called “insider control”, which has been widely discussed in the literature of SOE reform in transition economies.17 Future Direction of the Equitization Process and the SOE Reform in Vietnam It is clear that the government of Vietnam is determined to reform the SOE sector. This determination derives probably from the inefficiency of the SOEs, especially in comparison with their private counterparts.18 The government also wants to implement its commitment of not favouring the SOEs so that there is levelling of the playing field between different economic players, and the first task in realizing this is to do away with the inefficient SOEs. Doing this would also free up the resources and markets for the non-SOEs, and allow them to enter into areas which were once dominated by the SOEs. Intensifying SOE reform is also necessary to prepare the firms for international competition in the context of Vietnam’s integration into the region as well as the world economy. The SOE reform in the years to come should not be limited to diversifying their ownership into the existing forms like equitization, outright sale, or liquidation. The process should also take into account those SOEs that either are not likely to be of interest to private investors (for example the public utility firms), or are strategically too important to be in private hands. Nevertheless, in the gradually emerging market environment, these remaining SOEs need to be governed by a new corporate governance mechanism and face the same market conditions like all other firms in the non-SOE sectors. Besides these changes, a suitable competitive environment is seen to be necessary for the overall efficient operation of all firms. The whole process should be continued with the classification of all SOEs into two groups: those which are to be retained in the government’s hand and those whose ownership can be diversified. For the former, a new corporate governance structure should be established with the re-orientation of their operations, which have not been entirely focusing on profits. 19 This re-orientation in turn requires the elimination of other social burdens and interferences that the SOEs currently have to bear. While Vietnamese SOEs generally do not have to bear many social burdens like education, health care, or pensions except, probably, for the SOEs in remote areas where the local administration lacks resources to provide these services, their operations have frequently been interfered with by various governmental agents. The interferences by “line ministries” or “people’s committees” reflect the legacy of the previous centrally planned regime. The SOEs have also been subjects of frequent visits by such agents as the economic police, market inspection forces, tax authorities, which all cost the firms time and resources. Elimination of these interferences would require a clearer delineation regarding the roles and responsibilities of each and every government agency.

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The autonomy to be granted to the remaining SOEs, however, needs to go along with appropriate super vision and controlling mechanisms. Unfortunately, there has been no effective supervision and controlling mechanism over the SOEs after the abandonment of the centrally planned economic regime and its supporting institutions. In this context, the SOEs found themselves with much greater autonomy but not with the corresponding level of accountability. They have made full use of this loophole to appropriate public property. A study20 indicated that there is evidence that industrial SOEs in Vietnam manipulate administrative and marketing costs to minimize reported profits and pocket the inflated expenses. The new controlling and supervising mechanism needs to be part of the process of developing new corporate governance besides the above mentioned measure of having a clear delineation of the roles and responsibilities of the different governmental agencies. New corporate governance for the remaining SOEs may not ensure a better performance unless a competitive environment, which is generally seen as a sufficient condition to discipline the operation of firms towards a better outcome, is established. Even though the operating environment for SOEs in Vietnam has been improving and becoming more competitive, they are still enjoying significant privileges over the non-SOEs. Besides easier access to land and credits, SOEs have been given budget subsidies or allowed to postpone tax payments or even write off bank loans when they encounter difficulties and incur loss. Badly performing SOEs are not always declared bankrupt due to several inappropriate legal regulations. Trade policy still provides them with different kinds of protection in spite of significant liberalization in past years. 21 However, it appears that the government of Vietnam is firmly committed to reform its trade policy as it joined the ASEAN Free Trade Area (AFTA) and the Asia-Pacific Economic Co-operation (APEC), and especially as it proposed to join the World Trade Organization (WTO). The SOE sector, therefore, needs to prepare for these changes. The creation of a competitive operating environment for SOEs also requires measures to check the monopolistic behaviour of firms. While the corporate private sector in Vietnam is still weak, and therefore not able to hold any significant market power, due to historical factors, SOEs have become big players in several industries.22 They could also exert significant influence over the formulation of industrial policies towards their own interests, because of the dual role of owner and regulator that the government is performing. The ability to influence industrial policies enables them to block the entry of potential firms as well as to receive protection from foreign competition by import quotas, bans or high tariffs. Again, a new corporate governance with a clear delineation of the roles and responsibilities of different government agencies and the administrative reform would help prevent SOEs from influencing the policy-making process.

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For the equitization process to be deepened, certain steps are necessary. First, there needs to be a consensus on the role that the state sector should play in the economy of Vietnam. Given the failures of the state and the market, the state should probably limit itself to the provision of the public goods and to the activities in which the private investors are not interested. In this regard, the state sector needs to be further downsized, given its existing position in the economy. Secondly, and related to this, there needs to be a stronger determination on equitization on the part of government and its agencies. Experience shows that the success or failure of the equitization process depends very much on their determination to stay the course. Regarding technical issues, firstly, for the bankrupt SOEs, the only solution is liquidate them and pay off the debts. For the bad debts that SOEs owe the banks, one suitable solution would be to write them off. SOEs that are viable when they are relieved of debts, can be taken on the ownership-diversifying path. However, this course can result in unfair treatment between the wellbehaved SOEs and badly behaved ones, and set an undesirable precedent. Another method could be to establish a debt selling and purchasing company. But this may not solve the problem quickly and thus could delay the equitization process. To deal with the “triangle debts” that SOEs owe to each other, one solution would be for each SOE to calculate its own net debt situation. The Ministry of Finance can then play an intermediate role in offsetting these net debts among SOEs. The remaining debts will eventually be borne by the state budget. The debt selling and purchasing company can also play a role in this situation. The fear on the part of vested interest groups of loss of privileges and benefits could be overcome by further levelling the playing field for all economic sectors and by stopping the practice of favouring SOEs over the non-SOEs. Stronger administrative reform is also needed to break the interrelated interests between SOEs and the other parties. As for the surplus worker problem, the government, on one hand, needs to encourage the voluntary departure of surplus workers. This may be done by offering them severance packages, which are generous enough to encourage them to go.23 Other methods could be to reduce the retirement age or to provide retraining for the younger workers. However, this would entail an increase in the cost of the social insurance system. On the other hand, the government also needs to encourage the non-state sector to develop, as this sector has been shown to be an effective source of providing employment for the retrenched workers from SOEs.24 For the longer term, the government should think about establishing a social safety net for the unemployed people. Finally, whatever measures initiated and implemented for equitization in particular and for the ownership divestiture in general, it should be borne in mind that equitization is just a tool and not an end. The ultimate purpose of equitization is to enhance the performance of the SOE sector.

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Conclusion Despite its undeniable success in reforming the SOE sector, especially the equitization process during the general economic reform in Vietnam, there remain many obstacles to the ownership divestiture process. Obstacles range from the general perception of the role of the state sector, to technical issues like how to value the property of the SOEs. The obstacles exist not only before the equitization such as the unwillingness of the managers, workers, as well as the vested interest groups to participate but also during and after the completion of the whole process, like how the government should perform its role as the owner and as the regulator in the new circumstance. The reform measures in the years ahead need to focus not only on the equitization of the SOEs, but also on how best to manage those not to be equitized. The latter would be in areas where private ownership is not a better option, and they would need to be governed by a new corporate governance mechanism within a competitive environment. The autonomy to be granted to these remaining SOEs, however, needs to go along with an appropriate supervising and controlling mechanism, which is also part of the process of developing new corporate governance. In order to create a competitive operating environment for SOEs, their budgets need to be tightened by eliminating explicit and implicit subsidies as well as stopping the state banks from giving them soft loans. Badly performing SOEs should be required to cease operations. A competitive operating environment also requires the existing protective trade policy of Vietnam to be reformed and measures to check the monopolistic behaviour of SOEs to be established. The above-mentioned measures need to be accompanied by measures to diversify the ownership of SOEs, particularly through the process of equitization. The equitization process, however, will not proceed smoothly unless certain obstacles are addressed. These relate to a consensus on the role that the state sector should play in the economy and a stronger determination towards the equitization issue on the part of government and its agencies. Other issues that need to be addressed include resolving bad debts, valuing property, dealing with excessive workforce, and dealing with opposition from vested interest groups. The equitization process will also be enhanced by the stronger development of the private sector in Vietnam.

NOTES 1. For that period, the growth rate of national income was only 1.7 per cent per year. The average annual growth rate of industrial production was 1.5 per cent in industrial SOEs compared with 0.6 per cent for the whole economy. 2. One example is Government Decree 25 introduced on 21 January 1981. 3. At constant 1989 price, the industrial output of the SOE sector in 1989 was lower by 2.5 per cent as compared with that of 1988 and early 1990. Some 38 per cent of SOEs were making losses.

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4. Decree 388 from the Council of Ministers, issued on 20 November 1991 on the regulations for setting up and closing down of SOEs. 5. For example, the year-on-year growth rate of SOE industrial output value, in real terms, was 6.1 per cent in 1990; 11.9 per cent in 1991; 20.6 per cent in 1992; 14.6 per cent in 1993; 14.7 per cent in 1994; and 13.6 per cent in 1995. 6. Statistics from the Ministry of Finance show that three-fifths of SOEs were unprofitable as of the end of 1997; World Bank, “Vietnam – Rising to the Challenge: An Economic Update 1998”, Hanoi. For 1999, only 40 per cent of SOEs can make profits; Lao Dong newspaper, 23 May 2000, Hanoi. According to a report by Ministry of Finance, Vietnam Economic Times, No. 12, 1999, Hanoi, the ratio of profits to total capital decreased continuously from 1995 to 1997 for the SOE sector. 7. In September 1999, the government issued Decree 103/ND-CP on the “Sale, Contracting out and Leasing” of small SOEs, which was then replaced by Decree 49 in April 2002. The government also stated that it wants to further reduce the number of SOEs to 3,000 by 2003 and to 2,000 by 2005. In September 2001, Decree 63/ND-CP was issued on the corporatization of SOEs. Decree 64 issued on June 2002 is about transforming SOEs into the share-holding company. Decree 69 on July 2002 deals with resolving the debts of SOEs. 8. Nguyen Van Huy, “Co Phan Hoa va Da Dang Hoa So Huu Doanh Nghiep Nha Nuoc Thuc Trang va Dinh Huong Tiep Tuc Day Manh” [Equitization and Divestiture of SOEs: Situation and Orientation for Further Development], paper presented at the workshop, “Post Equitization in Southern Provinces”, Ho Chi Minh City, 25–26 July 2002. 9. National Enterprise Reform Committee (NERC), “Bao Cao Tinh Hinh Thuc Hien Co Phan Hoa Doanh Nghiep Nha Nuoc Den 31/12/1998” (Report on the Progress on the Implementation of Equitization of SOEs as of 31 December 1998), 19 January 1999, Hanoi. 10. M.R. Amin, and L. Webster, “Equitization of State Enterprises in Vietnam: Experience to Date”, MPDF Report, Hanoi, 1998, p. 7. 11. Vietnam Economic Times, No. 151, 2000. 12. World Bank, “Vietnam Delivering on its Promise: Development Report” (Hanoi, 2002). 13. Central Institute for Economic Management (CIEM), “Vietnam’s Equitized Enterprises: An Ex-post Study of Performance, Problems and Implications for Policy”, unpublished manuscript (Hanoi, 2002). 14. World Bank, “Vietnam Delivering on its Promise”. 15. Le Dang Doanh., “Thuc Trang Va Dinh Huong Tiep Tuc Doi Moi Doanh Nghiep Nha Nuoc o VN” [Current Situation and Orientation for Continuing Reform of SOEs in Vietnam], unpublished paper (Hanoi, 1999). 16. M. Rama, “Equitization and Labour Redundancies in Vietnam”, unpublished paper (1998). 17. This is a problem in which the manager and the workers of a former SOE capture substantial control in the corporate strategic decision-making for their own interests, thus preventing the firm from undergoing restructuring, and thereby undermining the other owners’ interests; M. Aoki and H. Kim, “Corporate Governance in Transitional Economies: Insider Control and the Role of Banks” (Washington, D.C.: The World Bank, 1995). 18. On average, the industrial SOEs are 13.8 per cent technically less efficient than the industrial non-SOEs; Q.N. Vu, “Technical Efficiency of Industrial SOEs in Vietnam”, Asian Economic Journal 17, no. 1 (2003): 87–101. 19. According to a survey of 91 firms in 1994 and 1995 by the Institute of Economics and the Institute of Southeast Asian Studies, profit maximisation was put on par with creating employment for workers as the first operation targets of SOEs; Nguyen

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20. 21.

22.

23.

24.

Vu Quoc Ngu Thi Thanh Ha., “Mot so y kien tu viec dieu tra 91 xi nghiep” (some opinions from a survey of 91 firms) in Nghien Cuu Kinh Te (Economic Study), no. 215, April 1996, pp. 62–64. Q.N. Vu, “State owned enterprise reform in Vietnam” (Ph.D. thesis, Australian National University, 2002). According to a study by the Centre for International Economics (CIE), “Trade and Industry Policies for Economic Integration”, Canberra, 1999, the effective rates of protection are greater than 100 per cent in eleven out of thirty-one industries (based on 1999 figures) and are highest in tobacco, alcohol, and beverages (830.7 per cent). These industries are largely dominated by SOEs, with their output share ranging from around 35 per cent to almost 100 per cent for the years 1995 to 1999. This is reflected not only in the larger output share of SOEs in these industries but also in their ability to influence industrial policies. According to the General Statistical Office (GSO), “Statistical Yearbook 1999” (Hanoi: Statistical Publishing House, 2000), the SOE sector, on average, accounted for more than 50 per cent of the output share in eight out of twenty-three manufacturing industries in the 1995–99 period. For the whole manufacturing industry during this period, SOEs were responsible for nearly 50 per cent of total value of production. According to a study by M. Rama, “Equitization and Labour Redundancies in Vietnam”, the amount of money that would encourage 20 per cent of the SOE workers to go voluntarily is equivalent to twenty-two months of basic salary or roughly US$650 for each worker. Another study by Bertrand and McCarty (1998) estimated this amount to be US$605. According to Adam McCarty, “The Employment and Social Consequences of Restructuring in Vietnam”, paper presented at the Conference on “How to Make Integration Work”, Hanoi, 31 March 1999, between 1989 and 1993 state enterprises shed 970,000 workers. Many of these displaced workers were taken up by the non-state sector, Center for International Economics (CIE), “Policies for Industrial Development and Enterprise Reform”, Canberra, 1998.

© 2003 Institute of Southeast Asian Studies, Singapore