Regional Outlook: Southeast Asia 1997-98 9789814345927

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REGIONAL OUTLOOK Southeast Asia

1997-98

I5EA5

Institute of Southeast Asian Studies

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

REGIONAL OUTLOOK Southeast Asia 1997-98 Editorial Committee Chairperson Professor Chia Siow Yue

Editors Daljit Singh T.N. Harper Associate Editor Cheong Yun Wan

Committee Members Mya Than Sorpong Peou Leonard Sebastian Nairnah Thlib Tin Maung Maung Than

Southeast Asia

1997-98

I5EA!i

INSTITUTE OF SOUTHEAST ASIAN STUDIES

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 119596 Internet E-mail: [email protected] World Wide Web: http://www.iseas.ac.sg/pub.html All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the Institute of Southeast Asian Studies. @!

1997 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.

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

sls91-209988

ISSN 0218-3056 ISBN 981-3055-42-1

7)!peset by Superskill Graphics Pte Ltd Printed in Singapore by Prime Packaging Industries

CONTENTS

Preface

vii

Chia Siow Yue Introduction

ix

Daljit Singh, T.N. Harper

I

THE ASIA-PACIFIC CONTEXT

1

The Setting

Daljit Singh The Hong Kong Transition: 'IWo Views

T.L. Tsim, john Wong

II

POLITICAL OUTLOOK 1997- 98

17

The ASEAN Six

T.N. Harper, Leonard Sebastian, Felix Soh, Naimah Talib Indochina and Myanmar

Nick Freeman, Sorpong Peou, Tin Maung Maung Than

III ECONOMIC OUTLOOK 1997- 98

47

The ASEAN Six

Tan Kim Song Indochina and Myanmar

Nick Freeman, Mya Than

Appendices

79

The Contributors

91

PREFACE egional Outlook was first launched in 1992. Designed for the busy executive,

professional, diplomat, journalist, and interested observer under severe time constraint, this annual offers a succinct analysis of economic and political trends in the countries of Southeast Asia and the outlook for the prospective two years. In this endeavour, it is impossible not to be overtaken by events. An analysis such as thls serves best when it indicates patterns of development, offers some insight into the unfolding complex dynamics and puts its finger on emerging issues and areas of change. This should provide the necessary background for the reader to interpret new information and data. In 1996, after initial concern over events in the Taiwan Strait and tensions in U .S.-China relations, attention became focused more on economic issues and developments, in particular the slowdown of East Asian economies, the slow recovery of Japan, and the opportunities and challenges presented by the Asia-Pacific Economic Co-operation (APEC) ministerial and leaders meeting in Manila and Subic Bay in November and by the first World TI·ade Organization ministerial meeting in Singapore in December. Regional Outlook 1997-98 was written by a team from within the Institute and without. We thank Daljit Singh, T.N. Harper, Nick Freeman , Mya Than, Sorpong Peou, Leonard Sebastian, Felix Soh, Naimah Talib, Tan Kim Song, Tin Maung Maung Than, T.L. Tsim and john Wong for their contributions. Responsibility for facts and opinions expressed in Regional Outlook of course rests solely with the individual authors. Their interpretations do not necessarily reflect the views or policy of the Institute.

----

Professor Chia Siow Yue Director

1 December 1996

INTRODUCTION

rn

he outlook for security and stability in the Asia-Pacific is more promising at the end of 1996 than it was at the beginning of the year, principally because U.S.-China relations are better, even though warier. There are several underlying security problems in the Asia-Pacific, including the Taiwan issue, but the major powers have a strong stake in the maintenance of peace and stability. Therefore, barring uncertainties on the Korean peninsula, adverse developments of a kind which could undermine the economic dynamism of the region are unlikely, at least in the near future. The economic slowdowns in some countries of Southeast Asia do not change the underlying economic dynamism. No significant adverse political developments are expected within the countries of Southeast Asia in 1997-98, though the situation in Indonesia seems more uncertain. In this issue of Regional Outlook we have a separate introductory section called The AsiaPacific Context. The peace and prosperity of Southeast Asia are intertwined in many ways with the broader Asia-Pacific region and a brief assessment of this broader region, especially of the potential conflict areas, is necessary. We have also included in this section two comments on Hong Kong's transition to Chinese rule in 1997. Following this, Southeast Asia is dealt with in two parts, Political Outlook and Economic Outlook. Each part is in turn divided into two sections, first the ASEAN Six (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) and then Indochina and Myanmar. Different authors have contributed to this volume and we would like to thank them for their contributions. We would also like to thank Mr Christopher Lee and Dr Mya Than for compiling the basic indicators of the Southeast Asian economies in the appendices. These have been obtained from various published sources and are included merely as background data that readers may find useful.

Daljit Singh T.N. Harper Editors

THE ASIA-PACIFIC CONTEXT

THE ASIA-PACIFIC CONTEXT THE SETTING Daljit Singh

rn

he current economic slowdown in a number of Asia-Pacific countries is mainly cyclical and therefore temporary. The region's economic dynamism will be sustained. The security problems are not expected to jeopardize the economic prospects. Relations between the United States and China have recovered from their lows of March 1996, and U.S. security commitments to the region have been reaffirmed. The status quo in the Taiwan Strait will probably continue as China seems more willing to take a long term view on reunification. The territorial disputes in the East and South China Seas are unlikely to be allowed to get out of hand because of the larger economic and strategic interests of the powers involved. However, the situation on the Korean peninsula remains dangerous and unpredictable.

Economic Dynamism and Regional Integration

2

rn

he Asia-Pacific continues to be the fastest growing region in the world and its market-driven integration will continue as greater liberalization and deregulation forge more trade and investment linkages. In 1996 economic growth slowed down in a number of Asia-Pacific countries, mainly for cyclical reasons. One factor has been the down cycle in the electronics industry, which is an important component in the manufacturing sectors of many countries. Another reason has been the need to cool down some of the economies from the hectic pace of growth of recent years, which had resulted in supply side constraints and increased inflation. Also, the anticipated recovery of growth in Japan did not materialize. These are temporary problems. According to industry analysts, the electronics industry will recover in 1997 and economies which would have cooled down in 1996 or during the 1997-98 period will resume higher rates of growth thereafter. The slowdowns must be seen in perspective. For instance the slowdown in 1996 in the region's fastest growing economy in recent years, that of China, still created an estimated 9.8 per cent growth compared with 10.2 per cent in 1995 and almost 12 per cent in 1994. A measure of stabilization will provide the Chinese economy with better macroeconomi< conditions for accelerated growth, which the government is indeed expecting in 1997. lr. Southeast Asia, Malaysia, Thailand and Indonesia were expected to slow down to 8.2 pe1 cent, 7 per cent, and 7.9 per cent respectively in 1996 compared with 9.5 per cent, 8.1 p e1 cent and 8.6 per cent in 1995, while the Philippines, the Indochina countries and MyanmaJ did not slow down and continued their robust growths. The development of regionalism has also been contributing to the buoyancy an< optimism of the region. The Asia-Pacific Economic Cooperation (APEC) forum provide< momentum for Asia-Pacific-wide trade and investment liberalization in recent years. APEC'

THE SETTING

Seattle meeting began the informal annual summits of heads of government, a development which goes well beyond economics in its significance, while the Bogor meeting agreed on the deadline of trade liberalization by 2010 for developed members and 2020 for developing members through 'concerted unilateral' action. After the euphoria generated by these meetings, governments had to come down to earth to begin translating the goals into reality. As expected, this proved to be more difficult. The Osaka meeting in 1995 did not deliver enough in implementation and the first action plans for the 1996 Subic Bay meeting were a disappointment, though the second round of plans was somewhat better. So APEC might be losing some momentum on trade liberalization though the political will probably exists to give it new impetus. However, it remains a vital institution for furthering Asia-Pacific co-operation. At the subregional level, regionalism continues to advance in Southeast Asia while remaining virtually non-existent in Northeast Asia because of that region's problem of divided states (Korea and China) and its historical rivalries and animosities. The Association of Southeast Asian Nations (ASEAN) has acquired a new significance after the end of the Cold War with a series of economic, political and security initiatives. In the field of security, ASEAN has taken on a pivotal role in the Asia-Pacific security dialogue process with the establishment of the ASEAN Regional Forum (ARF). Within Southeast Asia, the ASEAN Free 'Trade Area (AFTA), designed to enhance the subregion 's competitiveness as a production base for the world's multinational corporations, is to be realized by the year 2003 for the ASEAN Six and somewhat later for new members &om the Southeast Asian mainland. By then tariffs on goods under the Common Effective Preferential Tariffs (CEPT) scheme will be reduced to 0-5 per cent. ASEAN countries are well on the way to achieving this. By the year 2000, 88 per cent of CEPT products will already have 0-5 per cent tariffs in the ASEAN Six and by 2003 over 40 per cent will have zero tariffs. Meanwhile, the ASEAN Industrial Cooperation (AICO) scheme became operational in November 1996 and an ASEAN Investment Area is to be set up. Well before 2003, ASEAN will have expanded its membership to incorporate all 10 countries of Southeast Asia. Vietnam became the seventh member in 1995. The remaining three countries - Cambodia, Laos and Vietnam - are expected to be included simultaneously within the next few years. A 10-nation ASEAN will not lead to economic or political integration. There will still be 10 independent sovereign states, competing as well as co-operating, but with the ability to come together where their common interests are at stake. The larger ASEAN will also pose new challenges to the organization: the AFTA process will become multi-tiered and somewhat slower; new members will have different historical experiences and value systems and it may take them time to adopt the ASEAN way of dealing with problems; and the inclusion of Myanmar could complicate ASEAN's relations with the Western powers. However, ASEAN is determined to overcome the problems and make the larger organization work. The process of expansion creates a sense of movement forward, and optimism. When completed it will no doubt give ASEAN greater weight internationally.

3

THE ASIA-PACIFIC CONTEXT

Security Concerns

The Major Powers

sia-Pacific economic dynamism is ultimately dependent upon continuation of peace and stability. There are underlying security problems which, if allowed to get out of hand either because of nationalism or miscalculation, could undermine this dynamism. There were enough reminders of this in 1996, for example China's military manoeuvres in the Taiwan Strait and the resulting U.S. show of naval force; North Korea's submarine incursion into the South; and the stand-offs between Japan and China over the Diaoyu (Senkaku) islands and between Japan and Korea over the Takeshima (Tokdo) island. The most important of the security concerns centre on the policies of the major powers and relations between them; the problems of divided states, that is Korea and China/Taiwan; and the various maritime territorial disputes between states, especially those in the South China Sea.

rn

he most significant major power relationship in terms of its potential for the good or the ill of the region is that between the United States and China. This relationship seemed dangerously strained during the Taiwan Strait crisis earlier in 1996, which culminated in the United States sending two carrier battle groups to the U.S.-China vicinity of the Straits in March. Fortunately, U.S.-China relations have improved considerRelations ably since then following high-level discussions between the two sides. So it is unlikely that the region will slide into a new Cold War. The present U.S. policy of engagement of China will continue under the second Clinton Administration. However, at the same time, U.S.-China relations are today qualitatively different from what they were before President Lee Teng-hui's visit to the United States in 1995. The lines are more clearly drawn and there is a certain wariness and greater underlying distrust. The American show of force near the Thiwan Strait in hina 's sabre rattling in the Taiwan March 1996 must have been a bitter pill for the Chinese to Strait ... jolted U.S. policy makers swallow. Together with the U.S. policy of supplying Taiwan and the intellectual establishment to focus with weapons to defend itself, it signalled that, short of a their minds on China. Taiwanese declaration of independence, the United States will not allow the use, or threat of use, of force against Taiwan. In so doing it highlighted continuing Chinese weakness to a Beijing leadership already burdened with a sense of historical wrongs against China by Western powers. From the Chinese perspective, as if this was not enough, soon after the Thiwan Strait crisis President Clinton visited Japan and the two countries, amidst much publicity, agreed to expand the scope of the U.S.-Japan security treaty. Whether the timing was fortuitous or not, it aroused Chinese suspicions that the treaty was being adjusted against China as part of an emerging policy of containment of China. On the U.S. side too, perceptions of China have changed following China's sabre rattling in the Thiwan Strait. That event jolted U.S. policy makers and the intellectual establishment to focus their minds on China. Together with rising Chinese nationalism and

C

4

THE SETTING Chinese actions in a number of areas, it led to concerns that China seeks to change the status

quo in East Asia in ways which will adversely affect the United States' vital interests. It is not clear if a coherent U.S. policy on how to deal with China has been forged. Since the present political climate in East Asia will provide little support for a containment policy and since U.S. businessmen are pressing for a continuation of engagement so that they can exploit the opportunities of the China market, the policy is likely to be one of engagement coupled with maintaining a balance of power. These very divergent mutual perceptions as well as the existence of a whole host of issues between the two countries - over trade, human rights, transfer of nuclear and missile technology to third countries, etc. - that will continue to grate upon mutual sensitivities underline the importance of careful management of this crucial relationship. There is certainly now more recognition of this in Washington.

s a result of concerns about China and a renewed appreciation of the rising economic and strategic importance of the region to U.S. interests, there has been a reaffirmation of the U.S. security commitments in the Western Pacific. This was reflected in the reassertion of, and moves to strengthen, the security alliances with Japan and Australia, and the assurance by Defence Secretary Perry, to keep, at least for now, the number of U.S. forces forward deployed in Asia at around 100,000. All this has been reassuring to most countries of the region. The relatively higher importance being accorded to the Asia-Pacific is unlikely to change during the second Clinton Administration. Indeed, over the broad fundamentals of U.S. policy on East Asia, there seems to be developing bipartisan convergence, though the reduction in the number of international-minded legislators in influential positions in the Republican controlled U.S.legislature is a cause for some concern. However, over the longer term, the size of the U.S. secmity presence in the Western Pacific will remain hostage to U.S. public opinion, which in turn will be affected by whether the United States can eliminate its twin deficits and maintain enough economic growth.

rn

he Japan-China side of the U.S.-Japan-China triangular relationship, with its burden of historical mistrust and rivalry, is bound to be affected by future developments in U.S.-China relations, by the nature and pace of China's military modernization, by China's behaviour generally, and by the thinking of a younger post-1945 generation of Japanese politicians. Already there is growing concern about the future policies of China in the Japanese political and security establishment. Japan is in a period of relatively weak coalition governments, a sort of interregnum between the dominance of the Liberal Democratic Party (LDP) during the Cold War period and a new political system which is yet to emerge. Public opposition to rearmament and an independent military power remains strong. However, younger Japanese leaders would

U.S. Commitments Reaffirmed

Japan-China Relations

5

THE ASIA-PACIFIC CONTEXT

favour a larger and more independent security role for Japan and would want to gradually and incrementally move in this direction. China, on its part, does not want a deterioration in relations with Japan because of fear that it would push Japan further into the embrace of America and, over the longer term, strengthen the influence of the rightists in Japan. China also needs Japanese investments and technology.

Divided Territories The Korean Peninsula

Taiwan Strait

6

or the near future the Korean peninsula will remain the most dangerous potential flashpoint because of the peculiar and unpredictable nature of the Pyongyang regime, now beset by a serious economic crisis, and the continuing tense armed confrontation on the peninsula. There will also continue to be some uncertainties over its agreement to stop and roll back its nuclear weapons development programme. The main scenarios for 1997-98 remain the same as last year. They are more of the same, that is limping along amidst continuing economic crisis, isolation and insecurity; an improvement of the situation, as steps are taken to open up the economy though the beneficial effects of reforms may not be felt in the next two years, the period here under review; and an internal implosion through economic collapse or because of inability to manage the consequences of opening up. An irrational plunge into war with the South, though an unlikely scenario, cannot be ruled out completely: if the regime's leaders feel a collapse is near they may prefer to go down in that manner than be at the mercy of the hated South. There were indications in 1996 that the northern regime wants to make greater efforts to attract foreign investments into the Rajin-Sombong economic co-operation zone. However, progress is likely to be slow because of bureaucratic hurdles and fears of political costs, notwithstanding the Rajin-Sombong zone's favourable location with a 'catchment' of 80 million people in its hinterland in China and Russia.

rn

hrough its military manoeuvres in the Taiwan Strait, China was able to register the gravity with which it views the Taiwan issue, even though the dramatic events of March 1996 also made it realize that the use of military means in circumstances other than Thiwan declaring independence would lead to U.S. military involvement. The United States on its part realized that it has to resist Thiwanese demands for recognition and diplomatic space that would trigger a new crisis with China. Assured by the United States of its one-China policy and that there will be no repeat of Lee Teng-hui's visit there in 1995, China now seems more willing to take a long-term view on reunification. This fits in well with its need for peace and stability to carry out its economic development and modernization programme. The U.S. Administration, for its part, has been working on steadying U.S.-China relations, and would not want another crisis. Thus the prospects would seem to be good that the status quo will continue, though

THE SETIING

certain hiccups cannot be ruled out in view of Taiwan's continuing quest for more diplomatic space.

rn

erritorial disputes were very much in the news in 1996, highlighting the inherent dangers. There was considerable publicity on the disputes between Korea and Japan over Takeshima (Tokdo) Island, between China and Japan over the Diaoyu (Senkaku) Islands, and Indonesia's military exercises in the vicinity of the Nattmas in the South China Sea. However, the disputes are unlikely to be allowed to get out of hand because of the larger economic and strategic priorities of the powers involved. In the South China Sea, the Spratly Islands are contested by China, Taiwan, Vietnam, Philippines, Malaysia and Brunei. All these countries, except Brunei, have military forces there. In 1995 China had stated that it would abide by the principles of the United Nations Convention on the Law of the Sea (UNCLOS) and this statement was viewed in the region as an encouraging development. However, there was disappointment in 1996 when China drew baselines from the outermost of the Paracel Islands and declared the enclosed waters as internal waters. Regional countries regard this as contrary to UNCLOS: only archipelagic states are permitted to do this under UNCLOS whereas China is a continental state. China's action seems to set an ominous precedent for the Spratlys. Thus there has been no progress over the South China Sea disputes. They will simmer on. However, conflict is unlikely in the near future: China is not expected to use force to capture islands and reefs which it presently does not occupy because of the high priority it presently accords to good relations with the ASEAN countries in the context of its rivalry with the United States.

Territorial Disputes

7

THE ASIA-PACIFIC CONTEXT The 1997 Transition in Hong Kong: Two Comments Comment by John Wong

n

n 1 July 1997 Hong Kong will revert to China's sovereignty to form a Special Administrative Region (SAR), after more than 150 years of British rule. Hong Kong occupies a special place in British colonial history, as not just the last British colony in Asia, but also one with a per-capita income that is higher than that of Britain. The notion of a colony that is actually more developed or more affluent than its metropolitan country is a contradiction in terms in colonial history. To China, regaining sovereignty over Hong Kong marks the end of China's national humiliation by foreign powers for over a hundred years starting with the Opium War in

Selected Economic and Social Indicators of Hong Kong, Singapore and Britain Hong Kong

Singapore

Area (1 ,000 sq. m) Population, 1994 (million) GNP Per Capita, 1994 (US$)

6.1 21 ,650

2.9 22,010

Economic Growth(%) Average 1980- 90

6.9

6.4

3.2

Average 1990- 94

5.7

8.3

0.8

1995

4.6

8.8

3.0

6.4

1.2

2.2

Inflation (consumer prices %), mid 1996 Total exports, 1994 (US$ billion) Foreign reserves, mid-1996 (US$ billion)

97

205

60

70

39 (1994)

Hourly wages, 1995 (US$)

4.8

7.3

Infant mortality rate, 1994

5

5

6

78

75

76

Life expectancy 1994 (years)

8

151

13.8

THE 1997 TRANSITION IN HONG KONG

1838. Obviously, the event is of more than a symbolic significance to China. It carries enormous political and economic importance for China's future development. In a real sense, the midnight of 30 June 1997 itself is of no substantial significance, even though hundreds of foreign journalists will flock to Hong Kong to watch the hand over ceremony. For China has already declared that the capitalist way of life in Hong Kong will remain unchanged for 50 years under the policy of 'one country, two systems'. Furthermore, Hong Kong is already economically well integrated with China. The real test, therefore, is whether the transition will be smooth.

[1]

ust about a year ago, China and Britain were still at loggerheads, hurling accusations at each other and failing to agree even on such a trivial matter as the format of the ceremony on the hand over day. The depth of their bard feelings towards each other is vividly reflected in the remark by Lu Ping, China's Head of Hong Kong and Macau Office in the State Council, that he would not even want to shake hands with departing Governor Chris Patten! But since then, the overall politics underlying the Hong Kong transition has taken a sharp turn, holding a much brighter prospect for a smooth transition. It was recently reported that China's highest policy-making body, the Politburo, bad reached a consensus in Beidabe that China would take utmost the care, with as much flexibility as possible, to ensure that the transition would work. In fact , a high-level working group headed by Jiang Zemin has been formed to oversee the transition. To demonstrate China's determination to make the transition a success, Zhu Rongji had indicated that China would not hesitate to use its massive foreign reserves (currently US$90 billion) to defend the Hong Kong dollar if necessary. On the political front, China has also adopted a conciliatory 'United Front' policy to embrace even Hong Kong's anti-China activists, who have been invited to take part in the selection of the SAR's first Chief Executive Officer (CEO). China has already successfully mobilized the Hong Kong business community behind it. After the signing of the Sino-British Joint Declaration in 1984, Beijing left Hong Kong affairs largely to a number of senior bureaucrats at the State Council. As China continued to suffer bad international publicity over its handling of the Hong Kong problem after the confrontational Governor Patten 'internationalized' the issue, the top leadership in Beijing soon realized its high stake in a stable and smooth transition. The recent 'Thiwan Strait crisis also brought the transition problem to the fore. A rough and bumpy transition would not only incur high economic costs to China, it would also severely undermine China's policy towards 'Thiwan. Britain had similarly been driven by domestic political considerations to become more co-operative in its dealing with China over Hong Kong. The next general election in Britain has to be held before the transfer of Hong Kong. With his declining popularity, John Major might not even be returned to power; and the new Labour government could well choose to

Better Prospects for a Smooth Transition

9

THE ASIA-PACIFIC CONTEXT disown Patten's policy so as to start a new chapter in Sino-British relations. Of even greater significance has been the improvement of the overall Sino-U.S. relationship, following Anthony Lake's visit to Beijing. In the final analysis, it is a stable Sino-US relationship that will provide a conducive international and regional climate for the smooth transition in Hong Kong.

After 1997, the Same Lifestyle?

Business As Usual?

10

rn

he transfer of Hong Kong to China is but a one-day event, but the transition for Hong Kong is a long process, which can be clifficult. How should we measure the success? To begin with, it depends on how the way of life in Hong Kong, as perceived by the Hong Kong people and not according to Beijing's rhetoric, will be changed- the distinctive Hong Kong outlook together with its penchant for civil liberty, economic freedom , a free press and an independent judicia1y, etc. These institutional factors have enabled Hong Kong to amass talent from China and Taiwan to develop Hong Kong's art, film, broadcasting, and even literature to a high level of achievement. The same factors have fostered Hong Kong's fabulous entrepreneurship. In recent years, Hong Kong society has become increasingly politicized and contentious, with many elites getting very vocal in their political and social demands. The elites are also internationally mobile and they can vote with their feet by emigration if their demands and aspirations are not met. Beijing, however, also determines the pace and direction of Hong Kong's political and social developments. This illustrates the delicate balancing role which the SAR administration will have to play in the future.

hether business can go on as usual after 1997 is another and indeed more important measure of the successful transition. As the Hong Kong economy has symbiotically linked up with that of China through trade and investment, the former's prosperity seems to be assured so long as China continues with its present pace of economic reform and open-door policy. The 'China factor' alone cannot sustain Hong Kong's present high levels of prosperity. International capitalism has long been the other pillar of the Hong Kong economy, and Hong Kong must also keep up its links, its usefulness, and relevance to the international economy. Ever since China's open door policy in 1978, the Hong Kong economy has experienced a drastic process of de-industrialization by moving most of its production bases to Guangdong. Hong Kong's manufacturing sector has since shrunk from 25 per cent of GDP in 1978 to 17 per cent in 1990 and further to 11 per cent today. The Hong Kong economy, alone in the Asia Pacific, is now clearly a service-based economy, with a lot of tradable service activities, for exan1ple its financial sector.

THE 1997 TRANSITION IN HONG KONG According to the experience of many developed economics, it would not be easy for Hong Kong to sustain the continuing high performance of its service sector, particularly for meeting the twin objectives of growth and employment. The service sector is also highly sensitive to the ebb and flow of the international economy. For its service sector to remain highly competitive and efficient, Hong Kong will need to retain and develop its best human resources, its best infrastructure, and its best institutional environment. This will present a formidable challenge to the new SAR administration. After 1997, it is the Hong Kong people, even more than the Chinese Government, that should work hard to make the transition a success. If it were to fail, it w ill cost China dearly, but Hong Kong for its part will lose the raison d'etre of its separate existence, and hence face the unsavoury prospect of early re-absorption into its hinterland.

Comment by T.L. Tsim n 1 July 1997 Hong Kong ceases to be a British colony and becomes part of China. The hand over ceremony will mark the end of 155 years of British rule. On that day the departing British will hand over to China a prosperous city, a financial centre and one of the t\-vo most impressive business hubs in East Asia. Having signed away sovereignty over Hong Kong in 1984 and having introduced a fully-elected legislature for the first time in 1995, the British colonial administration is now prepared to withdraw with honour. Britain's conscience is clear after the last colonial governor, Chris Patten, tried his best to increase the franchise and involve more local people in the political process. The Chinese Government has consistently failed to appreciate how much the British have wanted an honourable withdrawal and how much that is tied up with Britain's perception of whether or not Hong oreign investors, particularly financial Kong has a fighting chance of holding Beijing to the promises of institutions, can be very fickle when it 'one country, two systems' and 'a high degree of autonomy' for comes to investing their money. At the 50 years. This and this alone explains why Governor Patten took first sign of trouble, money will qu·l ckly the heroic stand that he did in 1994 when he introduced his drain out of Hong Kong. electoral reforms in Hong Kong in the face of openly hostile, often vociferous, objections from Beijing. After 30 June 1997, it will no longer be Britain's watch. The onus will be on the new sovereign power to maintain the stability and prosperity of Hong Kong. The British will have delivered to the Chinese Government a going concern, and it will be a great loss of face for China if Hong Kong under Chinese sovereignty should lose its vibrancy, dynamism and earning power. Political stability is a requisite condition for sustained economic prosperity. Foreign investors, particularly financial institutions, can be very fickle when it comes to investing their money. At the first sign of trouble, money will quickly drain out of Hong Kong.

11

THE ASIA-PACIFIC CONTEXT

Political Stability: Three Factors

Differences on Future Legislature Still Deep

12

[W]

hether that will happen remains to be seen. Hong Kong's future prosperity depends on three factors. The first is a politically stable China. Once the British administration departs and there is no longer an effective border between Hong Kong and China, then it is not possible to insulate Hong Kong from the political turmoil which might engulf China in the event of a major power struggle, famine or civil war. Hong Kong, which under British administration had been mercifully spared the excesses of the Great Leap Forward and the Cultural Revolution, will from here on be subjected to the same political upheavals as may occur in China from time to time. There is no escaping this. The destiny of Hpng Kong is now inextricably tied to the destiny of China. The second factor, assuming Hong Kong is fortunate enough to be part of a stable China, will depend on whether Chinese leaders see the wisdom of maintaining those British institutions which have contributed to Hong Kong's prosperity. China should take a leaf from Senior Minister Lee Kuan Yew who when he came to power in Singapore decided to 'let Raffles stand where he stands today'. According to Professor Chan Heng Chee in her contribution to the book Driven by Growth, this was the recommendation of Dr Albert Winsernius who came to Singapore to advise the government after independence. By calling on Mr Lee to let Raffles stand where he stands today, Dr Winsemius meant it would not be in the interest of Singapore to dismantle British institutions and make changes for the sake of making changes. Tried and proven policies, the rule of law, the separation of powers, the use of English in public administration - all these should be allowed to continue. It was in Singapore's interest to keep them. It will also be in Hong Kong's interest to follow this route. Chinese leaders and the new Chief Executive in Hong Kong must have the wisdom to understand this. They must have the sophistication to understand that a resurgence of Chinese values and Chinese chauvinism may actually militate against these British institu· tions which have been at the heart of Hong Kong's success. The third factor is the forging of a government in Hong Kong which commands the loyalty of its people and has the implicit trust of the central government in Beijing. This is by no means easy and is ce1tainly not a foregone conclusion. China may take heart from the fact that no single party in Hong Kong is dominant and that this makes it easy for Beijing to pull the strings and exploit the differences between parties. The flip side of that is it may be difficult to build a government in Hong Kong which has the confidence and support of both the people of Hong Kong and the government of Beijing. In fact it might be argued that the one precluded the other.

rn

he Politburo member who is responsible for China's policy towards Hong Kong is Qian Qichen. He appears to understand that there is a need to involve the democratic parties in Hong Kong in the political process, however much he may dislike their political ideas and methods. In a move which surprised many people, Mr Qian invited the Democratic Party to join the Selection Committee which selected Hong Kong's

THE 1997 TRANSITION IN HONG KONG

first Chief Executive and the provisional legislature which will serve after July 1997. This represented a change of policy. Hitherto, the democratic parties had been regarded as subversive and it had been assumed that China would want to exclude them from Hong Kong's political process by hook or by crook. Mr Qian's move is, therefore, a new departure and suggests that China really wants to see a smooth transition and continued prosperity for Hong Kong. The reason for this probably lies in China's objective of using Hong Kong's return to the motherland as a positive example to Taiwan. The idea was first broached by Deng Xiaoping in 1982. Few people believed it then but this is the policy that is being implemented now. As matters stand today, however, the differences between Chinese leaders and the democratic parties in Hong Kong are deep and fundamental. The bone of contention is not who will be the new Chief Executive of Hong Kong or the manner of his selection. China has followed closely the Sino-British Joint Declaration and the Basic Law on this. There is no disagreement here. However, the bone of contention is likely to be the establishment of a provisional legislature which is borne out of Chinese pique and in retaliation against Mr Patten's electoral reforms. The Democratic Party led by Martin Lee is adamant that this body is illegal and will challenge its authority. Lee thinks the rule of law is at stake. It will take long hours of patient negotiation to narrow the differences between China and Hong Kong's democratic parties and there may not be enough time to achieve an accommodation before the handover. Disruption of transfer of sovereignty proceedings may still take place and the Hong Kong situation may still be a cause for concern as portrayed by the international news media.

n the economic side of the equation, the indicators are very positive. In 1978, when China's doors opened to the outside world via Hong Kong, what followed almost immediately is best described as the law of osmosis coming into play. The flow of people across the border, the flow of goods and the flow of money all testify to this fact. What has been happening in the last seventeen years is the economic integration of Hong Kong with China. This b·end will continue irrespective of the political situation. As Tables 1, 2 and 3 show, the increase in the two way flow of people from 1978 to 1995 is very impressive. But even more phenomenal is the trade flow. The increase in Hong Kong's exports to China over this same period was 785 times; the increase in Hong Kong's reexports to China was 1,794 times. The flow of funds in either direction tells the same story. The claims of Hong Kong's banking community on Chinese banks in 1980 when these figures were first collected was a mere HK$7.1 billion. In 1995 this had risen to HK$233.9 billion, an increase of some 33 times. During this same period, Hong Kong's liabilities to banks in China increased 216 times. The figures indicate quite clearly that financial resources are being pooled and shared.

Positive Economic Indicators

13

THE ASIA-PACIFIC CONTEXT

TABLE 1 People's Republic of China (PAC) Resident Arrivals and Hong Kong Resident Departures

Hong Kong Resident Departures for PAC Visitor Arrivals from PAC to Hong Kong

Increase from 1978 to 1995

1978

1984

1995

1,290,000

8,040,000

26,439,71 1

20 times

24,800

114,000

2,243,245

90 times

SouRce: Census and Statistics Department of the Hong Kong Government, Monthly Digest of Statistics.

TABLE 2 China's Trade with Hong Kong (HK$ million) 1978

1984

1995

Increase from 1978 to 1995

$ 10,550

55,753

539,480

51 times

81

11 ,283

63,555

785 times

Hong Kong's Re-Exports to China

214

28,064

384,043

1,794 times

Hong Kong's Re-Exports from China

3,659

28,107

636,392

174 times

China's Exports to Hong Kong China's Imports from Hong Kong

SouRce: Census and Statistics Department of the Hong Kong Government, Monthly Digest of Statistics.

14

THE 1997 TRANSITION IN HONG KONG

TABLE 3 External Claims and Liabilities of Authorized Institutions in Hong Kong vis-a-vis PRC (HK$ billion) Position as at the End of

1980

1984

1995

Average Annual Growth Rate (%)

1980- 95

($) Claims on Banks in China

7.1

10.7

223.9

26

Claims on China's non-Bank Sector

0.5

1.8

65.0

38

Liabilities to Banks in China

1.0

23.2

216.4

43

Liabilities to China's Non-Bank Sector

N/A

N/A

9.3

Net Claims on China

6.6

- 10.7

63.1

SouRcE: Hong Kong Monetary Authority.

l!l

bus economic imperatives will pull one way and political imperatives will pull in the opposition direction. This is a typical case of bifurcation and there is no better way to describe the fi rst few years of Hong Kong under Chinese sovereignty. 1 expect to see a gradual erosion of the kind of freedoms Hong Kong people have come to enjoy and now regard as theirs by right. I expect some laws to be changed to suit the wishes of the incoming sovereign power. The really crucial question, however, is whether Hong Kong's stability and prosperity will con tinue after these changes. Singapore seems to have shown that political liberties are not a sine qua non of stability or prosperity. Hong Kong, however, is a very different society and owes its success to quite different qualities. At the heart of Hong Kong's success and entrepreneurial fla ir is the spirit of its people. In trying to crush that spirit, China may have to pay a very high price, and in Hong Kong dollars. China's premier leader, Party Secretary Jiang Zemin , has lauded Hong Kong for its innovation and creativity. He needs to understand that it is the rule of Jaw which guaran tees the freedoms which nurture that creativity.

The Spirit of the Hong Kong People

15

POLIT ICAL OUTL OOK

1997- 98

POLITICAL OUTLOOK

THE ASEAN SIX T. N. Harper • Leonard C. Sebastian • Felix Soh • Naimah Talib

Brunei

18

omestically, Bnmei continues to emphasize the conservative and traditional nature of its polity. In line with its national philosophy of Melayu Islam Beraja, Islam has been given a higher profile. Like other modernizing monarchies, the Sultanate has consistently made recourse to Islamic themes in a period of rising religious enthusiasm with the aim of reducing or neutralizing the effectiveness of Islamic opposition. Since 1990, the Sultan has called for existing laws in the state to be brought more in line with the teachings of Islam. A step in tllis di1·ection is the Sultan's call to implement Shariah law beyond the sphere of family law and to apply it to criminal acts. Islamic banking institutions, introduced in the last few years, have reportedly been doing well, and the newly-established Islamic 'frust Fund is gaining popularity among the dominant Muslin1 community. The tiny kingdom was recently reminded of the tumultuous December 1962 revolt when Zaini Hj Ahmad, an ex-rebel leader, was released from detention and given a royal pardon just a few days before the Sultan's fiftieth birthday celebrations in J uly 1996. Zaini was one of the leaders of the Brunei revolt and had escaped from detention to Malaysia in 1973 and remained there as an exile until his recent return to the Sultanate for rehabilitation. The year 1996 also witnessed the historic meeting of the General Assembly of the mukim and kampong, local and village, consultative councils wllich were constituted in 1993 with the objective of consolidating the grassroots institutions of the penghulu and kehta hampong, the local and village heads. The Royal Brunei Armed Forces will continue its modernization programme and has signed a contract with GEC Yarrows of Scotland for the supply of three offshore patrol vessels which will be delivered in 2000. These will be used to beef up the Sultanate's naval presence in the South China Sea, where it has a long-standing dispute with China over the Spratly Islands. The Sultanate plans to build a new naval base to house and maintain the patrol vessels. It is also keen to purchase 48 McDonnell Douglas Harpoon anti-ship cruise missiles for use on the patrol boats. The year 1996 sees the start of Brunei's Seventh Five-Year National Development Plan (1996-2000) w hich aims to continue the objectives of the Sixth Plan to diversify the economy through the development of human resources and to improve the overall level of productivity. In line with this diversification programme, Brunei is stepping up its efforts to make the cotmtry a Services Hub for Trade and Tourism (ShuTT) of the East ASEAN Growth Area (EAGA) by the year 2003. It is anticipated that the Sultanate, with its relatively advanced infrastructure, will act as the subregion's bridge to the global as well as the regional community. Various p lans to realize this vision have been approved, including the expansion of airport, port, and telecommunications services. Its membersllips in the International Monetaxy Fund (IMF) and World Bank will bring enormous benefits to the Sultanate in the provision of technical expertise on fiscal and monetary matters and advice on strengthening its economic foundations through sound financial policies.

THE ASEAN SIX

Brunei Land Area:

5,765 sq km

Population:

284,500

Capital:

Bandar Seri Begawan

Head of State:

HM Paduka Seri Baginda Sultan Hj Hassanal Bolkiah Mu'izzaddin Waddaulah

Currency:

Brunei Dollar

US$ Exchange Rate on 30 November 1996:

US$1

=

BS1.402

The economic outlook for the Sultanate seems better for the next few years in view of various initiatives to boost further the growth of the non-oil industries. The services sector, such as hotels and restaurants, banking and finance, transportation and communications, is projected to grow at 13 per cent this year. Brunei, whose dollar is pegged to the Singapore dollar, has to rely on the services sector because it faces much difficulty in drawing foreigners to invest in manufacturing owing to high operating costs. The politica l outlook remains stable. In the short term, it would appear that the Sultanate shows little inclination to liberalize its traditional and conservative form of government.

[T

he situation in Indonesia is more uncertain than a year ago. President Soeharto is well in charge and he is expected to seek and obtain in 1998 another term in office. But he has not groomed a successor a nd as he grows older, the challenges to his authority seem to have increased. The unexpected death of Mrs Siti Hartinah (Tien) Soeharto, wife and confidante of President Soeharto, on 28 April 1996 brought back to the limelight the issue of the presidential succession. The demise of Tien Soeharto was a serious blow for the President and raised concerns about his capacity to fulfil his duties for another term in view of his advanced age and some uncertainty about his health, especially after his well-publicized trip to Germany for a medical check-up. Though the death of lbu Tien does not seem to have dampened the President's enthusiasm for another the term of office, he conceded in a n August 1996 interview with Japan's Nihon Keizai Shimbun newspaper that there was a need to prepare the next leader since he would be 77 years old at the time of the next presidential

Indonesia

19

POLITICAL OUTLOOK

election in March 1998. Such an admission suggests that over the next few years, Soeharto may become more willing to indicate his succession plans. President Soeharto's choice of vice-president in 1998 is therefore cmcial. Who the vicepresident will be remains an open question. The person will need to have the full confidence of Soeharto that he will protect his legacy and interests. Some of the possible candidates mentioned are civilians, for example Minister for Research and Technology B.J. Habibie, Minister for National Planning, Ginanjar Kartasasmita and even the President 's eldest daughter, Siti Hardiyanti Rukmana have been mooted. Another possible candidate is Army Chief of Staff General Raden Harlono, with the President's son-in-law, Special Forces Commander Major-General Prabowo Subianto, waiting in the wings. The latter, who is likely to be at the apex of the Armed Forces leadership within a few years, is anticipated to play a key role in the presidential transition through his control of the military. There are three main succession scenarios. First, the President could stand for election in 1998 and possibly hand over the reigns of power to a successor sometime around 2000. There is talk that a political position could be crafted for him similar to the one enjoyed by Singapore's Senior Minister Lee Kuan Yew. However, this may not accord with Javanese tradition and the President's personal inclinations. The second option would be for him to continue his term of office to 2003 while grooming lhe successor and constructing the support base which would gird the in-coming president who almost certainly will not enjoy the same measure of political prestige as Soeharto. The benefit of the above scenarios \vould be that President Soeharto will be able to determine the process himself and play a leading role in the management of the transition. The third scenario would envisage the death or

Indonesia

20

Land Area:

1,919,443 sq km

Population:

196.6 million (1995 estimate)

Capital:

Jakarta

Type of Government:

Presidential government based on the 1945 constitution

Head of State:

President Soeharto

Next Election:

1998 (presidential) 1997 (parliamentary)

Currency Used:

Rupiah

US$ Exchange Rate on 30 November 1996:

US$1 - 2,344.5 rupiahs

THE ASEAN SIX

serious illness of the President while in office. There is no ambiguity in the constitution about who will succeed the president if he cties in office. It will be the vice-president, until a presidential election is held. Under such conditions, there could be intensified jockeying for power and influence among factions, in particular the military, political Islam as represented by ICMI (the Indonesian Muslim Intellectuals Association), and the new business elite. The majority of these new forces will seek to advance their interests within the existing system rather than try to change it. The new president will have to mobilize their s upport. At present, President Soeharto's grip on power remains secure. The only group able to challenge him, the Armed Forces, remains staunchly loyal. The President's exceptional longevity in office and unrivalled personal authority have resulted in his overwhelming dominance of the Armed Forces. Potential rivals in the military have been removed from power, either nullified through promotions, transfers and restructuring, or eased into retirement. The current Army leadership was carefully hand-picked by the President, with several key appointments going to those having previously served as presidential adjutants. The changes make it all the more p lausible th at the restructured military leadership will be better placed to reach a consensus on its preferred candidate for succession. With the general election for the House of People's Representatives scheduled for the first half of 1997, with an estimated 20 million first-time voters, the authorities have moved to curb political activity fuelled increasingly by activists clamouring for greater democratization of the Indonesian political system, by growing economic disparities, and by uncertainties over the presidential succession issue. The military's resolve to continue to play an active role in national politics in support of the status quo has resulted in the ousting of Megawati Sukarnoputri from the leadership of the Indonesian Democratic Party (PDI or Partai Demokrasi Indonesia) and her replacement by her predecessor Suryadi. Behind this move lay a concern about the degree to which the PDI had deviated from the carefully orchestrated political system built by the New Order government of President Soeharto. Hence throughout 1995, moves were made by Megawati's opponents in the PDI, with official support, to curb her. While these moves confirmed intense official fear of her influence, they also had the inadvertent effect of projecting her into a force to be reckoned with because she attracted considerable sympathy as a victim of heavy-handed government tactics and support from those seeking a more just and open economic and political order. It was unlikely that the PDI could have posed much of a threat in the short term. The PDI only garnered 15 per cent of the votes in the 1992 national election and could only be expected at best to increase its margin by 5 per cent or 10 per cent. However, a larger number of PDI legislators in Parliament as a consequence of a better performance in the 1997 national election could, from the government's perspective, have proved extremely disruptive. This is because the term of office (1998-2003) for the new Parliament would also be the period w hen pivotal decisions pertaining to the management of the transition to the post-Soebarto era w ill probably be made. The government wished to prevent Megawati from turning the PDI, one of the country's three officially sanctioned political parties, into a genuine opposition group staging an unprecedented challenge to Soeharto in the presidential elections of 1998. There was little likelihood that Megawati would have won had she

21

POLITICAL OUTLOOK

decided to challenge President Soeharto in the 1998 presidential elections. However, under such a challenge, President Soeharto would not have enjoyed unconditional legitimacy. In the traditional Javanese style, the president is not elected. Legitimacy is conferred symboli· cally through unanimous endorsement as an embodiment of the national spirit. Rioting broke out in Jakarta following the takeover of the PDI headquarters on the morning of 27 july by supporters of newly-elected chairman Suryadi. According to Indone· sia's National Commission on Human Rights, clashes between anti-Government protesters with soldiers and police left an aftermath of five people killed, 149 injured and 74 missing, contradicting the official figu re of four dead and 28 injured. It is highly likely that most of those missing were just lying low to avoid arrest. Approximately 249 were arrested and more than 30 buildings were damaged in the worst political unrest since the 1974 Malari incidenl. The government put the blame for the riot on the People's Democratic Party (PRD or Partai Rakyat Demokrasi} and pointed to overt similarities between the PRD and the Indonesian Communist Party. The frequent use of Marxist rhetoric by the PRD, a group of young political idealists, played directly into the hands of military. While the PRO may not be a significant organization, its emergence points to a trend of what Nahdatul Ulama leader Abdurrahman Wahid called 'moral movements'. While conceding that Megawati's PDI had no structural links with the 'Communist-style' PRO, Armed Forces' Chief of Sociopolitical Affairs, Lt.-Gen. Syarwan Hamid stressed that there were correlations between the distur· bances and her role in the events. The government has, at least for now, effectively sidelined Megawati by barring her from the up-coming election: it would only accept the Jist of candidates from the Suryadi-led rump PDI. Being outside of the political mainstream she will have difficulty galvanizing support. However, Indonesia's policy makers will have to grapple with serious problems over the next few years. Incidents of sporadic unrest may well recur, following the recent riots in Jakarta, South Sulawesi and East Java. Resentment over corruption and the business empir~ of President Soeharto's children and associates - many of whom are ethnic Chinese seems wider. New issues such as labour rights in the industrial sector have arisen amidst the pressure of overcrowded cities and urban poverty, highlighting the gap between the rich and the poor. Activist groups are sprouting to tap into these pools of discontent. Demands for accountability and transparency in political decision-making are also stronger. However, the security forces should be capable of containing isolated disturbances. It is important to place things in perspective. Indonesia is not on the verge of a people's power revolution similar to the one that took place in the Philippines in 1986. Opposition forces lack organizational unity and do not have the power to challenge the government directly. Yet, at the same time, it needs to be said that challenges to authority can have a snowballing effect if the President's control is perceived to weaken through, say, illness or if he were to suddenly pass away without grooming a successor who enjoys the support of the main establishment forces.

22

THE ASEAN SIX

ollowing its landslide victory in the 1995 general election, the position of the ruling Barisan Nasional coalition government in Malaysia and the personal authority of the Prime Minister, Dr Mahathir Mohamad, remains at a high ebb. Dr Mahathir remarked in October 1996 that any threats to Malaysia's continued growth and prosperity came not from outside but from within. Domestic instability in Malaysia's recent hlstory has stemmed either from divisions within the ruling party, or from religious or racial conflict. However, on all of these fronts, events in 1996 bolstered the forces for stability. Economic growth remains high, and the impetus behind ambitious new projects in technology and education has not slackened. However, the very speed of developments has provoked debates on ethics in political and commercial life, which now dominate the domestic political agenda. As the United Malays National Organisation (UMNO) , the main party in the coalition, celebrated its fiftieth anniversaq, it was beset by rumours that it was deeply divided, and that relations between Dr Mahathir and his deputy, Anwar Ibrahim, were troubled. The rumours were hotly denied by the two men, who attacked the foreign media for giving undue credence to them. However, they were fuelled by over-eager supporters, and by a series of incidents - especially controversy over the appointment of chief ministers in the states o£ Sabah and Kedah- in which rival camps were seen to be at work. The temperature rose before the triennial UMNO party elections in October. The top two posts, president and deputy president, held by Dr Mabathir and Anwar, were uncontested. The vote for the subordinate posts not did radically alter the balance of power

Malaysia

Malaysia Land Area:

330,434 sq km

Population:

20.1 million (1995 estimate)

Capital:

Kuala Lumpur

Type of Government:

Federated padiamentary democracy with constitutional monarch

Head of State:

His Majesty the Yang di-Pertuan Agong Thanku Ja 'afar

Prime Minister:

Dato' Seri Dr Mahathir bin Mohamad

Next Election:

June 2000

Currency Used:

Ringgit

US Exchange Rate on 30 November 1996:

US$1

=

M$2.526

23

POLITICAl OUTlOOK within the party. Although two of the victors in the contest for the three vice-presidenciesEducation Minister Najib 1\.m Razak and Selangor Chief Minister Muhammad Taib came to prominence as supporters of Anwar in 1993, they are now regarded as men of independent standing within the party. So too is the third victor, foreign minister Abdullah Ahmad Badawi. The man who topped the poll, Najib, now looks the man most likely to act as Anwar's deputy should Dr Mahathir step down. It is increasingly clear that the 'rivalry' between Dr Mahatbir and Anwar is a rather crude method of lmderstanding Malaysian politics. Anwar has had a long relationship with the Prime Minister, which is based on broad commonalities of outlook, rather than blind obedience. When Dr Mahathir co-opted Anwar into UMNO in 1982, he was well aware, as he reiterated in 1996, that 'nobody can be me 100 per cent, and I too cannot be 100 per cent Anwar'. Anwar can, and - given the perils of a miscalculated challenge to Dr Mahathir must, wait to inherit power. His supporters are more impatient. There are no signs that Dr Mahathir is ready to retire. He has indicated that he will stay at the helm until he is given a clear signal to leave, and he makes it clear that succession will follow the established chain of command. He will, no doubt, wish to remain in office to promote Malaysia at the 1998 Commonwealth Games in Kuala Lumpur, and to preside over the completion of many of the projects he has inaugurated. If a signal is to come, a crucia! moment will perhaps be early 1999, when the triennial party elections w ill loom again on the eve of the next general election in 2000. Dr Mahathir has indicated that he may bt willing to contemplate a contest for the top posts in that year. Leadership contests within other major Barisan Nasional parties, the Malaysian Chines€ Association {MCA} and Gerakan, also reinforced the leadership status quo. The opposition continues to suffer serious reverses. The Democratic Action Party {DAP} made some inroad: in the Sarawak state elections, but remains a weakened force at the federal level. Th1 position of UMNO has been bolstered by re-absorption into the party of the oppositior Malay party, Semangat 46. Led by the Kelantanese Prince, Tengku Razaleigh Hamzah Semangat 46 was formed following a split in UMNO in 1987 after Tengku Razaleigh failed ir his bid to topple Dr Mahathir as leader of UMNO. Although it was unsuccessful in it attempts to orchestrate an effective opposition challenge to the Barisan Nasional at tht federal level, it achieved local power in the state of Kelantan , where it governed from 1990 i1 alliance with the Islamic opposition party, PAS. UMNO, to Dr Mahathir's annoyance, did no break this coalition at the polls in 1995. However, in 1996 the marriage of convenieno between PAS and Semangat 46 soured and Tengku Razaleigh announced the wholesale n entry of the 200,000-odd Semangat 46 members into UMNO. The first question raised by this episode is the future of the Islamic opposition. The PA government in Kelantan has not yet fallen. It still holds onto a majority and there has bee:• no mass defection to the Barisan Nasional. Indeed, PAS has succeeded in recruiting som former Semangat 46 members. UMNO could force elections in the state, yet neither side ar•: in a hurry for this: UMNO has to be sure it can win them. Meanwhile, PAS insists that it i · business as usual. Islam remains a potent force in Malay politics. However, Dr Mahathir ha 1 shown his continuing determination to use all the powers at his disposal to comba ·

24

THE ASEAN SIX

heterodox groups that might destabilize the country. Anwar Ibrahim energetically propounds a Southeast Asian Islam, shaped by the plural realities and innate tolerance of the region. A second question raised by Semangat 46's crossing-over is the future leadership role Tengku Razaleigh (a former finance minister) might play within UMNO. It is unclear what this will be. Tengku Razaleigh gives the impression that he is no longer hungry for high office and may be content to rejoin the UMNO mainstream as a distinguished elder statesmen. The return of Sernangat 46 is unlikely to upset the leadership equation dramatically, but it does suggest that the new generation leaders who rose to power in 1993 will not have it all their own way. The policy impact may be assessed in similar terms. Semangat 46 leaders emphasize the need for Malay unity, but stress that development must not be at the expense of economic equity or of the traditional Malay heartland. The buoyant economic mood continues, and it cuts across ethnic groups. Communal issues remain dormant in the face of this. The 1996 Seventh Malaysia Plan continues the emphasis on technology and upgrading the workforce begun in the education reforms earlier in the year. The Petronas twin towers have topped out and more grand architectural projects were announced. The urgency to development is undiminished, although there have been setbacks. The Bakun dam project was stalled by the com·ts, but work has now resumed. The steel giant, Perwaja, collapsed in a costly financial scandal. Dr Mabathir's high profile launch of the Multimedia Super Corridor was followed by a peninsula-wide power blackout two days later. The 1996 budget showed some signs that the government is now seeking to temper growth and consolidate the service sector. Yet regional observers were in no doubt that Malaysia's strides towards its industrial Vision 2020 were immense. \t\~1en Singapore's Senior Minister Lee Kuan Yew raised the issue of Singapore rejoining Malaysia, it was a recognition of the measure of Malaysia's competitive challenge. Neither government has this on their immediate agenda; statements by Singaporean leaders on the issue were not well-received in Kuala Lumpur. However, Lee's remarks were an impressive plaudit for his one-time political opponent, Dr Mahathir. Within Malaysia, the overriding concern of leaders has been with the quality of p rogress. Dr Mahathir has repeatedly stressed that Malaysia is not merely chasing development for its earching internal debates on own stake, but aiming to establish a new Malay civilization. He materialism, 'money politics' and the remains keenly aware that the voice he has created for Malaysia future of Malaysia 's civil society will in world affairs will mean that the country and its institutions continue to gather momentum in the will be under intense external scrutiny. Searching internal de- coming years. bates on materialism, 'money politics' and the fuh1re of Malaysia's civil society will continue to gather momentum in the coming years. These debates are a measure of Malaysia's stability and self-confidence. Yet Dr Mahathir's legacy to this debate will be a dual one, which will reflect both the liberal and authoritarian sides to his political personality. He has sought to enable, but also to discipline, Malaysian society. He is a visionary teacher, but a stern one. It remains to be seen how Malaysia's new generation leaders will choose to build on his achievements.

25

POLITICAL OUTLOOK

The Philippines

o longer the 'sick man' amongst the ASEAN economies, the Philippines continues to take slow but increasingly irreversible steps towards internal stability and durable economic growth . President Ramos remains popular and securely in control. Internal politicking is rising in intensity as the 1998 presidential elections approach. However, there are clear signs of a growing consensus among leaders that the impetus towards economic reform must continue. Issues of crime, corruption and the corrosion of key institutions dominate the domestic debate, and are perhaps the most serious medium-term challenge to the Philippines' economic revival. After a quarter of a century of civil sb·ife, peace of a kind has come to Mindanao. The breakthrough came in June 1996 when the government and the Moro National Liberation Front (MNLF) agreed to the transitional measures outlined in the 19761hpoli Agreement: autonomy for the 14 southern provinces and 10 cities with Muslim majorities. An historic embrace between President Fidel V. Ramos and MNLF leader Nur Misuari sealed the deal during a meeting at Davao on 19 August, and the formal agreement was signed in Manila in September. Brokered by the Organization of Islamic Conference, the agreement rolls into place a new regional structure: the Southern Philippines Council for Peace and Develop· ment [SPCPD]. Wider than the existing Autonomous Region of Muslim Mindanao, of which Nur Misuari is now governor, the SPCPD will oversee the areas covered by the Tripoli agreement for three years, and following a plebiscite, grant it full autonomy. The five-man council is headed by Nur Misuari, assisted by a consultative assembly in which the MNLF has a majority. A role for over 5,000 of the MNLF's fighters will be fow1d in the Philippine armed forces. Development funds have been promised and the government has pinned its

-

I

Philippines

26

Land Area:

300,000 sg km

Population:

68.6 million (1995 estimate)

Capital:

Manila

'JYpe of Government:

Republic, with American-style presidency and two-chan1ber Congress

Head of State:

President Fidel Ramos

Next Election:

May 1998

Currency Used:

Peso

US$ Exchange Rate on 30 November 1996:

US$

=

26.289 pesos

THE ASEAN SIX

hopes for the rapid development of the region on Mindanao's pivotal role within the East ASEAN Growth Area (EAGA). The peace is undoubtedly a great personal achievement for President Ramos. However, the new arrangements have been questioned from all sides: the SPCPD is criticized both for having inadequate powers and that it is unconstitutional, a provisional government in all but name. Non-Muslim minorities accuse it of being unrepresentative of the people of Mindanao. Many of the region's Christians do not trust Misuari and the MNLF. and fear Islamization and the confiscation of their lands. The city council in the Christian enclave of Zamboanga purchased assault rifles to ann a militia to resist the former guerrillas. Misuari moved quickly to allay fears: but these are testing times for his leadership. Moreover, he faces powerful opposition from within the Islamic community. The peace does not include the Moro Islamic Liberation Front (MILF), which many analysts believe to be a more potent military force than the MNLF. It also ignores the militant Abu Sayyaf, which has connections with international jihad organizations. There are signs that more peace treaties might be signed on other fronts. The exiled Communist Party of the Philippines (CPP) leader, Jose Maria Sison, also agreed to a reopening of talks with Manila in September. Yet, as with the Moro resistance, fractures within the rebel movement will continue to cause problems for some time to come. The CPP has been deeply split since 1992 and factions in the towns have become implicated in gangsterism and extortion. The Philippines remains a heavily armed society; violence and kidnappings dominate the news. The year began with a series of outrages that terrified the Filipino Chinese business community. The poor conditions of personal security tarnish the country's international image; they discourage foreign investment at the very moment when the government is projecting an upbeat image of the national revival at events such as the November 1996 APEC summit. There is growing public impatience with the legal system, in spite of attempts to clear delays in courts; and there remain allegations of corruption in high places, to which even the man charged with stamping it out, Ombudsman Aniano Desierto, has been subject. 1\vo Cabinet ministers were sacked in April 1996 under a cloud. President Ramos is undoubtedly deeply concerned at how this may undermine his legacy, and the attempts to improve public confidence in Jaw and security look set to take centre stage during the final years of his term in office. However, they tend to become hijacked by personal political campaigns. The Presidential Anti-Crime Commission, headed by vice-president and presidential hopeful, Joseph Estrada, was hit by scandal. The administration now places much store on new Interior Minister Robert Barbers, a tough former police colonel. However, this appointment served to substantiate fears in some quarters at the growing m ilita1y complexion to the administration. Fears that Ramos may become a new Marcos are unlikely to materialize: civil society has grown in strength since 1986. But these anxieties are fed by the jockeying for position by contenders for the presidency, particularly as their manoeuvring has centred on the question of constitutional reform, which raises echoes of 1972. Supporters of the president have tried unsuccessfully to replace t he United States-style presidency with its fixed six-year

27

POLITICAL OUTLOOK

term, with a prime ministerial system. Now they plan to amend the constitution to allow all elected officials to seek election as often as they wish. This is clearly an attractive proposition for incumbents, and far more likely to gain the necessary support in congress than a constitutional change that aims solely to bolster the position of the chief executive. President Ramos takes a detached view of these developments and has waited for the initiative for his re-election to come from the people: either registered through a constitu· tiona! convention or by a people's initiative, such as a signature campaign. Many powerful interests would welcome a second term for Mr Ramos, or at least an extension of his tenure until 2000. Big business, for example, wants to be reassured that economic reform will stay on track, and is suspicious of the populist rhetoric of leading contenders such as Vice President Estrada. However, even if the campaign for constitutional revision gathers tht necessary momentum, it is unlikely that the complex mechanisms for change will run theil course in time to benefit Mr Ramos. Powerful figures resist the move: former president Corazon Aquino, church leaden such as Cardinal Sin, and the media have come out against it, as have many members ol congress. In O ctober an alliance was formed between two leading opposition parties, Laban and the Nationalist People's Coalition (NPC), to wrest control of the senate from the pro· Ramos grouping and block any move to change the constitution. Masterminded by Laban leader Senator Edgardo Angara, it placed the NPC chief Ernesto Maceda as Senate chief and seized control of key senate committees. This realignment reverses a similar coup last year, which placed Ramos supporters in control. Although some within this alliance are disposed to revise the constitution at some stage, its leaders harbour ambitions for the top job and are determined to see a contest in 1998. However, it remains to be seen if this alliance will hold together and field a compromise opposition slate in the election. The leading contender from Ramos' own party, the Lakas-NUCD, is Jose de Venecia. He lacks popular appeal and his opponents attack him as a trapo, a powerbroker of the old mould. Vice-President Estrada has popular appeal in abundance, but lacks a solid party base. LDP chairman Edgardo Angara has consolidated his place in his party, further distanced himself from the president, and is expected to run; 1992 contender Miriam DcfensorSantigo, a powerful critic of the regime, also remains in the frame. Of the other hopefuls, a woman to watch is Senator Gloria Macapagal-Arroyo. She scored highly in opinion polls in May, she possesses pedigree and a popularity that might make her a vice-presidential possibility, or even a contender for the top job. Ramos will probably not endorse a s uccessor until later 1997, and it is too early to predict which combination might emerge. What has emerged from the early r un-up to the elections are important indications of how far the reform path is tied to the person of Fidel Ramos. Although many of the Ramos critics emphasize the need to fight corruption and to ensure economic equity with growth, they will have to acknowledge Ramos' formidable economic record: economic growth of 6 per cent in 1995 and 7.1 per cent in the first half of 1996. After gaining control of the senate, new senate president Ernesto Maceda immediately voiced a commitment to seeing through the key essentials of Ramos' pivotal tax-reform package. Vice-President Estrada is attempting to flesh out a credible position on economic issues, and balance his populist appeal with reassurances of continuity to business. The pace of reform may slow down as

28

THE ASEAN SIX

the political temperature rises during the coming year. However, it is unlikely that the fundamentals of economic reform will come unstuck after the 1998 election. Many of those sympathetic to Ramos staying on will quickly learn to live without him, given the right candidate. The future stability of the Philippines will lie with the integrity of its institutions and the soundness and resolution of its policy. That leading political leaders increasingly voice recognition of this is grounds for some optimism.

Igeneral election is to be held in Singapore no later than April 1997. It will not

Singapore

alter the dominance of the political scene by the ruling People's Action Party (PAP). What will be at issue is whether a few more, or one or two fewer, opposition members will be elected to Parliament, which has at present 77 PAP members out of a total of 81. The ruling party in Singapore has to contend vvith the rising expectations of a population conditioned to the benefits of a booming economy. How it tackles tllis issue over the longer term will determine whether there will be an erosion of the commanding electoral position of the PAP. The ground was reported to be soured recently because of a perception of a rising cost of living, especially the costs of cars and p rivate housing, and because of hefty increases in the salaries of ministers and top civil servants. Debates on these issues were less about economic ineguHy than about perceptions and expectations: of the need to balance the conflicting needs of different groups in society. The government reiterated its desire to allow every Singaporean an opportunity to participate in

Singapore Land Area:

633 sg km

Population:

3 million

Capital:

Singapore

Type of Governmen t:

Parliamentary democracy

Head of State:

President Ong Teng Cheong

Prime Minister:

Goh Chok Tong

Next Election:

By April 1997

Currency Used:

Singapore dollar

US$ Exchange Rate on 30 Novem ber 1996:

US$1 = S$1.402

29

POLITICAL OUTLOOK

wealth creation, for example through the highly subsidized floating of Singapore Telecom shares. They argued that Singaporeans were spending more than five years ago because they were buying better-quality goods and services. The government also attempted to make the playing field more balanced for Singaporeans. First, curbs were placed on the property market to rein in speculators. Second, the government took an unpopular decision to provide subsidies to a small proportion of young professionals and graduates to enable them to own executive condominiums and meet their aspirations to own private prope1ty. The central political challenge facing the government is its ability to not only create wealth and redistribute it wisely, but also convince voters effectively of the need for such distribution. The issue of cost of living has its roots in the high expectations of the younger generation, middle-income group but is also a concern of a larger segment of the population who perceive rising costs in better categories of public housing and in medical care. The opposition Singapore Democratic Party (SDP) was quick to pounce on the issue. However, debates on these costs. conducted through the Select Committee on Health Care Subsidy and the Cost Review Committee, exposed the ill-preparedness of opposition leaders and their administrative and political inexperience. The highly publicized debates were a shrewd political strategy on the part of the government that allowed it to challenge the populist rhetoric of the opposition. Whilst the PAP remains confident that the vast majority want to see a PAP government remain in office, it campaigns to persuade the electorate not to cast their vote tactically for a counterweight Parliamentary opposition. lt demands that the people vote solely on programmes and performance. It has launched a steady progression of initiatives over the pasl year to reinforce this message: on housing, b·ansport, and the detailed improvement plans drawn up for their constituencies by PAP Members of Parliament (MPs). Responsible voting is encouraged by giving elected leaders a more pronounced role in the locality and, by implication, in the improvement of the assets of individual citizens. Prime Minister Gob Chok Tong has proposed the formation of Community Development Councils and introduc· tion of mayors to promote community bonding. At the apex of this campaign is constitutional reform. A Parliamentary Elections Act Wa5 passed in November to increase the number of Members of Parliament elected as a team in the Group Representation Constituency (GRC) from the present four to a maxin1um of six. The Act also sets a minimum of eight single-seat wards, lower than the present provisions, which state that no more than three-quarters of the total number of seats in ParHament can be won through GRCs. This is an important piece of legislation that will inevitably have in1plications at the polls. The reduction in the number of single-seat constituencies would work against the opposition by requiring them to field bigger teams with designated minority candidates in certain wards. Notably, all of the seats won by opposition pa1ties since 1988 were single-seat wards. An opposition upset seems unlikely. Its best chance would be to put aside partisan rivalries, and make a strong showing in a few strategic constituencies. Taking into account the fractious nature of the opposition parties, and their inability to match the quality of PAP candidates, it is doubtful whether they can improve on the four seats won in the l991 election, though one cannot rule out a further drop in the PAP's percentage of the vote. The

30

THE ASEAN SIX

election will be an opportunity to sound out the depth of popular concern over elitism and give a focus to any latent social jealousies. No doubt, some Singaporeans are disgruntled and, despite government exhortations. may register a protest vote as a consequence. However, a significant sector of the crucial, undecided voters still would have watched SDP secretarygeneral Chee Soon Juan's performance over health care with dismay. He was fined for contempt of Parliament. In reinforcing the government's message to Singaporeans that there is no alternative to the PAP, Senior Minister Lee Kuan Yew, in response to a q uestion from a journalist, revived in June 1996 the question of Singapore's remerger with Malaysia. In so doing, he sought to remind a younger generation seemingly obsessed with the 'Singapore Dream' -of careers, cash, credit cards, condominiums and country club membership - that the survival and prosperity of Singapore could not be taken for granted. Prime Minister Gob, whilst emphasizing tha t remerger was not on his political agenda, a lso took up the theme of Singapore's vulnerability, particularly given the increased economic competition from neighbouring countries competing for similar foreign investments and markets. A hallmark of Gob's leadership will continue to be h is drive to consolidate his party's support among middle-class Singaporeans and among younger voters. His priority will remain the recruitment of new leaders who will reflect the growing diversity of Singaporean society.

D

uring the rocky 14 months when Prime Minister Banharn Silpa-archa was at the helm, his fractious six-party coalition government created a volatile political situation. Allegations of widespread corruption, power str uggle among the coalition partners a nd a lleged interference in the management of the economy adversely affected the confidence of local and foreign investors. There were also other scandals, for example the denial of U .S. visas to two prominent personalities in Banharn's Chart Thai party because of their alleged links to d rug trafficking. The Thai economy had been overheated and bad run up against supply side constraints after a period of hectic growth and was thus due for a slowdown. However, it was w idely perceived that mismanagement by the government also contributed to the decline. The year 1996 saw a stalling of exports, the e ngine of Thailand's booming economy over the past decade. More serious was the burgeoning current account deficit. Economists predict the gross domestic product will grow by about 7 per cen t in 1996, the lowest in a decade. Adding to the bleak economic outlook was the downgrading of Thailand's short-term sovereign debt rating by Moody's Investors Service in September 1996. Shaky coalition governments, a consequence of the m ulti-party system, have always been a fea ture of Thai politics. ln the past, the chaos generated by 'musical-cha ir' administrations had little impact on the economy. The balance of power between the monarchy, the bureaucracy, the pohticians, the military and the private sector had a lways created continuity in economic policies. However, it is significant that this harmony was upset in 1996. It is noteworthy that when the government was dissolved on 27 September, the stocl< market closed almost 5 per cent higher. 1

Thailand

31

POLITICAL OUTLOOK

The deep resentment the middle class felt towards Banharn, whom they considered an old-style provincial politico, caused the collapse of his government in 1996. They had scant faith in, or patience with, Banharn's economic stewardship. Bangkok's middle class elite gave a clear signal to those holding the reins of power: they must reform and overhaul the electoral system and get the counhy's economy back on track. Reform of the political system, from th e perspective of the urban elite, is essential if Thailand is to take the leading role in the region that its geographic and economic size demands. Yet the election campaign leading up to the general election of 17 November 1996 and the outcome of that election showed that while the urban middle class may be able to bring down a government, it is more difficult to ensure that Thai politics will be cleaner or that the next elected government will be to their liking. The election campaign was one of the most 'dirty' in memory, with record sums of money changing hands. The election results showed gravitation towards two groupings, Chavalit Yongchaiyudth's New Aspiration Party (NAP) and Chuan Leekpai's Democrat Party. The two emerged with the largest number of seats in Parliament, with the NAP winning only a few more than the Democrats. If the two parties were to form a coalition government together, it would have a hefty majority in Parliament. However, this is unlikely to be the case. Instead, the NAP has formed a coalition with a number of smaller parties. The Democrats will remain a potent opposition and could form the next government if Chavalit's coalition were to collapse at any time during the next few years. Chuan's base is the south and the urban middle class; Chavalit's is principally in the rural northeast and sections of the milita1y. A coalition under Chuan will have a relatively clean image and better appeal to the middle class and the business community. Tlus was obvious in the plunge of the stock market when it was announced that Chavalit, not Chuan, had won the largest number of seats and would have the first go at forming a government. Nevertheless, Chavalit's government is expected to be an improvement over the previous government in terms of image and quality of its economic team. However, like previous coalition governments, after a honeymoon period, the prime minister will have to spend part of his energy holding the coalition together, and the smaller pruties sustaining the coalition are bound to exact influence on policy, thus limiting Chavalit's effectiveness to some extent in the policy arena. The new government will have to address two immediate problems. One is the matter of amending the constitution. If this results in the introduction of proportional representation, coalition governments will become a more permanent feature of the Thai political scene. Second, the government will immediately have to address the economy. It is necessary to restore confidence in the economy. Also, inflation has to be dealt with and more projects created for the rural areas. The rising aspirations of the people have to be managed. While the Thai economy bas probably bottomed out at 7 per cent growth, there are structural problems which have to be addressed to sustain long-term growth. These include development of human resomces to service a higher wage economy, removal of infrastructural bottlenecks and attention to the environment. In the realm of foreign policy, Chavalit will be more activist wlule Chuan will be more domestic oriented. Over the years, first as Army Commru1der-in-Chlef and Supreme

32

THE ASEAN SIX

Commander of the Armed Forces, then as Cabinet Minister in one capacity or another, he has developed strong links with political and military leaders in Southeast Asia . So he is likely to take a s trong in terest in the region. He also has close links with both China and the United States. The monarchy remains a positive, moderating force in Thaj politics. In 1996 T hais celebrated the fiftieth anniversary of the accession to the throne of King Bhumibol Adulyadej, the world's longest-serving monarch. His non-partisan status makes him a crucial figure in unifying all Thrus: the politica l glue that holds the country together. In his half century on the throne, he has seen 15 constitutions, 17 military coups and 21 prime ministers. During this period he has intervened politically three times: in the 1973 and 1976 bloodbaths and the democracy uprising in May 1992. In 1997 and beyond the king w ill remain the bedrock of national stability. But with two heart operations in the past year or so, questions are being raised about the health of the 68-year-old monarch. In conclusion , the outlook for Thailand for 1997-98 has improved. The new govern· ment will probably be better equipped to restore confidence in the country's economy. Thai democracy is alive and well, for this was the third successive election without any military interference, a record 62 per cent of the electorate voted, and a robust free p ress kept the electorate well informed of political events. Yet, whilst the middle class and Bangkok elite will continue to demand major reforms, they will not have it all their own way. Sixty per cent of the population still Eves in the coun tryside, where the poEtics of patronage and money prevail. It is unlikely that the pattern of fractious coalition government will be broken, at least not in the near fu ture.

Thailand Land Area:

514,000 sq krn

Population:

59.1 million

Capital:

Bangkok

'I'ype of Government:

Constitutional monarchy

Head of State:

King Bhumibol Adulyadej

Next Election:

2000

Currency Used:

bah t

US$ Exchange Rate on 30 November 1996:

US$ 1

=

25.520 baht

33

POLITICAL OUTLOOK INDOCHINA AND MYANMAR Nick Freeman • Sorpong Peou • Tin Maung Maung Than

Vietnam

34

fter the major foreign policy-oriented events of 1995 - including gaining full membership of ASEAN and the full normalization of relations w ith the United States - 1996 saw Vietnam re-focus on domestic issues and the appropriate pace of economic reform. The Eigh th Party Congress, held in late rnid-1996, confirmed that economic reform (commonly referred to as doi moi) was the correct way ahead for Vietnam, albeit w ith renewed concern that other non-economic issues - such as internal stability, social equity, party discipline, and the need to counter such social evils as corruption, smuggling, and vice - must receive increased attention in the coming years. Widening disparities in income between some rural and urban areas, and the need to find jobs for one million new entrants into the job market each year, are just some of the issues that need addressing. For example, whilst the average per capita GDP figure for the country as a whole is currently around USS300, Ho Chi Minh City residents are close to having an average income of USS 1,000 per annum. Despite much speculation in 1995 to the contrary, the senior-most posts of Party Secretary, President, and Prime Minister remained unaltered after the Party Congress, whilst the new 18-person Politburo saw a number of changes to its ranks. A new five-man standing board was also established for the first time, in a bid to speed-up decision-making in the senior ranks of the party. Following in the wake of appointments made at the Party Congress, the October 1996 meeting of the National Assembly resulted in some ministerial changes. National Assembly elections in early 1997 may also result in some further changes to the state leadership. Although the Party Congress is usually a five-yearly event - and the extended preparations for the Eighth Party Congress began as early as the latter half of 1995 - a precedent has been set for a mid-term Party Congress, which could be held as early as late 1998. Between now and then it is quite likely that the top-most triumvirate will change. This is a time of generational change for the party leadership in Vietnam, as new blood is injected into the upper-middle ranks, and an attempt is made to improve the quality of cadres and government officials. However, given Vietnam's record of enacting change through a gradualist approach of incremental steps, we are unlikely to witness striking shifts in power. Crucially, the supremacy of the party is not being challenged, and there is scant prospect of any seismic shifts in governmental rule in Vietnam. Rather, events in the political forum will continue to revolve around the mechanics of economic reform and ensuring internal stability, at a time when the country's economy is rapidly developing and growing more complex. Therefore, the hectic pace of promulgating new legislation to better govern over the state-regulated market economy will continue. Similarly, the need for further administrative reform remains a pressing one. On the international front, after a period of successful foreign relations initiatives, 1996 was a relatively quiet year. Following on from the opening of embassies in Hanoi and Washington, U.S.-Vietnam relations continue to improve, albeit slowly. The bothersome

INDOCHINA AND MYANMAR issues of MIA (missing-in-action) servicemen persists, and is one reason why Hanoi's aim of gaining MFN (Most-Favoured-Nation) status does not appear imminent, although some fo rm of a U.S.-Vietnam trade pact may be enacted in 1997. Delay in confirming the post of U.S. ambassador to Hanoi, and press speculation of irregularities in the allocation of funds for the MIA programme, have not helped matters. Having become a full member of ASEAN, Vietnam is beginning the major task of reforming its trade regime, in order to conform to AFTA regulations by 2006. Vietnam has also submitted an application to join APEC, despite the current moratorium on new members, and is also seeking entry into the World Trade Organization (WTO). Relations with China also continue to improve, with Li Peng attending the Eighth Party Congress. In addition, the rail link between Hanoi and China resumed in early 1996, for the first time since the border clash of 1979. Despite the evident parallels between Vietnam and China's economic reform programmes, the long history of tensions between the two countries, and the ongoing problem of competing offshore territorial claims (and crossborder smuggling), w ill ensure that any rapprochement between Hanoi and Beijing is a cautious one. However, the various infrastructural initiatives that have been proposed for the Greater Mekong region - comprising Vietnam, Laos, Cambodia, Thailand, Myanmar, and southwestern China - may provide a forum for increased dialogue between these countries, which in turn may be conducive for Hanoi-Beijing relations. Vietnam's relations with Laos remain fraternal - as exemplified by the similarities in Party Congresses held in Vientiane and Hanoi during 1996 - although Laos' economic relations with Thailand and China continue to grow. The ongoing domestic conflict within Cambodia and the treatment of ethnic Vietnamese residing in the country will ensure that relations w ith Phnom Penh

Vietnam Land Area:

330,330 sq km

Population:

75 million

Capital:

Hanoi

Type of Government:

Socialist republic

Head of State:

President Le Due Anh

Party Chairman:

Vo Van Kiet

Prime Minister:

Do Muoi

Currency Used:

Dong

US$ Exchange Rate on 30 November 1996:

US$1 = 11,042 dong

35

POliTICAl OUTlOOK remain something of an irritant for Hanoi, albeit they are much improved from a decade ago. The return of Vietnamese 'refugees ' from various camps around the region has accelerated in pace, with Hong Kong in particular seeking to empty all its camps before the mid-1997 deadline. We envisage the broad political situation in Vietnam remaining stable in the coming years, with attention focusing primarily on maintaining internal stability and social cohesion at a time of rapid economic change. Debate within the Party will revolve around the right pace, depth and extent of economic reform required for Vietnam to catch up with its ASEAN partners, without imperilling certain core values and socio-political tenets. Although we are likely to witness some changes in the leadership over the next two years, the primacy of the party will not be questioned. A much improved foreign relations profile will greatly assist Hanoi in this process, although long-held perceptions of external threat will persist.

Laos

aralleling political events in Vietnam, Laos held its five-yearly Party Congress in May 1996. This Sixth Congress of the Lao People's Revolutionary Party reviewed the last five years of economic reform and planned a future path and targets. A number of changes were made to both the Politburo and the Central Committee, including the inclusion of four new m embers, and the ejection of the deputy prime minister and former head of the foreign investment licensing body, the Committee for Planning and Cooperation. In addition , the 82-year-old President of the Lao People's Democratic Republic (PDR) stepped down from the Politburo, although he has kept his state position at least for now. As a result, the membership of the Politburo dropped from eleven to nine. Similarly, the Central Committee membership list dropped from 55 to 49. A new post, that of vicepresident , was also established, as was a new State Planning Committee, although the remit of the latter remains unclear. Echoing developments in Vietnam to a marked degree, the leadership in Laos has begun to stress the need to guard against forces promoting 'peaceful evolution ' (that is political pluralism), as an unwelcome side-effect of economic reform and rising flows of external trade and foreign investment. Recent changes in the party leadership structure are congruent with a perceived need for renewed vigilance on matters pertaining to domestic stability and maintaining the party's supremacy. A perceived rise in social evils, including gambling and prostitution, is also likely to be addressed, as exemplified by the recent police raid on an unofficial (Thai-managed) casino operation. At the recent Party Congress, the military gained increased representation on the Politburo , and the Central Committee's political report to the Congress sanctioned the army's role in developing the economy and assisting in the development of the country's more backward provinces. Although there are still occasional reports of killings by anti-government armed forces in rural areas, their sporadic nature tends to suggest that they pose little more than an annoyance to Vientiane. However, the need to ensure that no ethnic tension - kindled perhaps by regional disparities in income, as a by-product of economic reform - is allowed to rear its head remains an important consideration for the government.

36

INDOCHINA AND MYANMAR

Laos Land Area:

236,800 sq km

Population:

4.5 million (1995 census)

Capital:

Vientiane

Type of Government:

Communist party-led people's republic

Head of State:

President Nouhak Phomsavan

Party Chairman:

General Khamtay Siphandon

Prime Minister:

General Khamtay Siphandon

Currency Used:

Kip

US$ Exchange Rate on 30 November 1996:

US$1

~

kip 920

On the international front, Laos hopes to become a full member of ASEAN in July 1997, having held observer status at the regional grouping for some years. Prior to that date, Vientiane aims to open embassies in the capitals of all the other member countries. Preparatory training for this event has already begun, but the demands of full membership in ASEAN will exercise Vientiane far more in the coming years. A timetable for Laos to conform to AFTA will also have to be settled upon. Relations with Thailand continue to improve, following a visit by the Thai prime minister in mid-1996; an agreement on the opening of new consulates; the return of almost all refugees, and the formation of a Lao-Thai Border Peacekeeping Cooperation Committee. However, long-held Lao distrust of their more prosperous 'cousins' across the Mekong River - who account for around half of all FDI inflows- are likely to remain an underlying feature of Vientiane-Bangkok relations, as evident in current tensions over border trade, and uncertainty over the prospect of building more bridges across the Mekong. Although fraternal relations with neighbouring Vietnam and China were stressed at the Congress - with Hanoi's Party Secretary Do Muoi and an alternate member of Beijing's politburo in attendance, amongst others- landlocked Laos is finding itself at the centre of a wider trend towards greater regional co-operation in mainland Southeast Asia. In addition to ASEAN's desire to have all ten Southeast Asian states within its ranks by the millennium, improved relations between Vietnam and China, the former Indochina subregion and Thailand, and growing acceptance of Myanmar, are all combining to make plans for crossboundary infrastructural networks a potential reality. Sited amidst these plans, Laos stands to benefit from this growing regional affinity, which should herald greater stability. The fruits of such a trend should include more inflows of trade, investment, lending, and Official

37

POLITICAl OUTlOOK ',

Development Assistance (ODA) all of which are expected to benefit Laos. Despite the very close and long-held political bonds between Vientiane and Hanoi (and plans to construct roads linking Laos with the Vietnamese coast), in the long-term, economic relations with Vietnam are likely to be diluted by this trend towards greater regional co-operation, as business synergies with other countries become more apparent. In conclusion, we anticipate no major changes in the political profile of Laos in the coming years, and see no immediate threats being posed to its external or internal security. The almost inevitable process of economic reform is expected to continue, as a less ideologically driven - and more performance-re lated - state administration evolves. Despite the outward appearance of almost identical political systems in Vietnam and Laos, in some ways Vientiane has always been less ideologically purist than Hanoi. And, aided by its smaller scale, Laos may find the process of transition a little easier than Vietnam, as witnessed in its speedier approach towards state sector reform and privatization through leasing. The primary focus of government attention will probably continue to be on economic growth and monetary stability, as well as trying to raise the currently low living standards of many of its citizens, and trying to improve on the country 's minimal infrastructure. Partly in a bid to achieve these goals, we expect Vientiane to continue with its more outward-orient ed approach towards externally-spon sored initiatives that may assist this process. In particular, the next few years should see some announcement s on major hydro-

1

power and transport projects.

Cambodia

38

close look at a string of recent events in Cambodia suggest some positive changes towards peace and stability. Since the elections in May 1993, the coalition government formed by the major competing political parties (the Front Uni National pour un Cambodge Independent, Neutre, Pacifique et Cooperatif [FUNCINPECJ, the Cambodian People's Party [CPP) and the Buddhist Liberal Democratic Party [BLDP)) has not collapsed despite some incidents of major turbulence within the coalition. These have included Sam Rainsy's loss of the Finance portfolio in late 1994 and his expulsion from the National Assembly in June 1995; the arrest, jail and then expulsion of Prince Norodom Sirivudh (a top FUNCINPEC leader and former minister of foreign affairs) in late 1995, allegedly for plotting to assassinate Prime Minister Hun Sen (in February 1996, Prince Norodom Sirivudh was sentenced in absentia to 10 years in prison); Prime Minister Ranaridh 's threat in March 1996 to quit the coalition government if his party was not given a fair share of the power pie; and the stern reactions this received from the CPP leadership . Despite the high intra-coalition tensions between March and June 1996, the two leaders managed to keep their alliance intact, with Ranaridh admitting in May that his party would continue to stay within the coalition, and with Hun Sen also stating that the marriage of convenience between the two political parties was more important than the two bickering leaders and that he expected their coalition to outlast the twentieth century. Another change for the better has been the major breakup of the Khmer Rouge since August 1996. Prime Minister Hun Sen was prepared to allow the breakaway group led by

INDOCHINA AND MYANMAR

Cambodia Land Area:

181,040 sq km

Population:

Approximately 10 million

Capital:

Phnom Penh

'I}rpe of Government:

Constitutional Monarchy

Head of State:

King Norodom Sihanouk

Prime Ministers:

Norodom Ranaridh & Hun Sen

Currency Used:

Riel

US$ Exchange Rate on 30 November 1996:

US$1

=

riel 2,300

!eng Sary back into the mainstream society, suggesting that Cambodian leaders are more willing to accommodate one another's security needs through bargaining and compromise. Prime Minister Ranaridh also emphasized the need for national reconciliation as a way to end the war and to rebuild the economy. This spirit will no doubt lead to a rapid decline in the intensity and frequency of military activity across the country. Slow political progress seems to go hand in hand with economic progress. There are some encouraging signs on the horizon. In 1995, total exports increased ninefold compared to those in the preceding year, inflation rate dropped drastically, and the World Bank has predicted an annual average economic growth rate of about 7.1 per cent for the 1996-2000 period and around 6.5 per cent from 2001 to 2005. At the same time government intolerance of opposition still remains unacceptably high. There have been instances of political violence: between May 1993 and May 1996, four journalists were murdered; between May and June 1996, three opposition Khmer Nation's Party {KNP) members were also killed. The government still does not recognize the KNP led by former Finance Minister Sam Rainsy. However, with its small membership {about 70,000 as claimed by the party). factionalism within the party, and a lack of military muscle, the KNP is not in the position to pose an effective challenge to the government. To some extent, the government has exercised self-restraint. Expected violent demonstrations against Sam Rainsy in early 1996 did not materialize. Cambodia 's international and regional position has been improving. Since the signing of the Paris Agreement on 23 October 1991, Cambodia's neighbours - Thailand and Vietnam - have pledged not to interfere in its domestic affairs. The great powers have not worked at cross-purposes on Cambodia. Since the last elections, the permanent members of the UN Security Council have fully recognized the Cambodian Government. Even China

39

POliTICAl OUTLOOK has turned its back on its own traditional ally, the Khmer Rouge. In 1996 the United States granted Cambodia MFN trading status. Regionally, Cambodia acceded to the ASEAN Treaty of Amity and Cooperation (TAC) in 1995 and submitted a formal application for full membership with ASEAN. It is expected to join the grouping in 1997. The relatively less violent and fractious character of Cambodian coalition politics has much to do with the international community's united stand on Cambodia and the country's desperate dependence on foreign aid and investment. The United States and other Western countries have therefore played a major role in keeping the coalition government intact. About 40 per cent of the annual Cambodian budget is financed by external sources. Although official figures suggest that about US$2.5 billion had been invested in Cambodia by the end of 1995, only a small amount has been realized: about US$10 million in 1994, and US$100 million in 1995. In response to the rising instability within the government in early 1996, many large-scale foreign investment projects were held back or were subsequently withdrawn. This must have been a powerful disincentive to further intra-coalition instability. The government has also worked hard to impress the world that the country has become a safe and attractive place for foreign visitors who will add more revenues to the cash-strapped country. In 1995 about 220,000 foreigners visited the country, marking a 24 per cent increase on 1994. The year 2000 has already been set as a target to attract one million foreign visitors. In short, then, Cambodia's desperate economic and financial needs have restrained factional political behaviour, at least in the short run. Driven by the need to garner foreign aid, attract foreign tourists and foreign investments, the Cambodian leaders have demonstrated an ability to settle their differences peacefully if grudgingly. The question is: Will they continue to stay united in the future? They will probably do so, as long as the dependence on outside aid and investments continues, and this is likely to be a long time, although there will always be some risk of conflict. For the longer term , public policy making will continue to be constrained by unfavourable structural conditions. Cambodia will remain a backward agricultural and non-industrialized society for some time. Government efforts at meeting basic human needs necessary for long-term economic development are not robust. Despite the 8 per cent increase for 1996, the budget for education, US$34.2 million for a population of about 9 million, is acceptably low. Spending on health and agriculture (with only US$24.2 million and US$7.2 million respectively) has gone up, but is still far from enough. If the war ends, the economy is expected to perform better. The present lack of budgetary discipline over the military and security institutions would then stand a better chance of being rectified, and the professionalization of the armed forces could then also make progress. In 1995, the number of generals, colonels, lieutenant-colonels, and majors was substantially reduced. Defence spending, which takes the largest share of the national budget, can be expected to shrink slowly. Yet, even if defence spending were to be effectively reduced to zero per cent of the national budget, the process of economic development would not take off in the next five to ten years. Greater effort and more financial resources must be invested in basic education,

40

INDOCHINA AND MYANMAR public health, and agriculture. The next major hurdle fac ing Cambodia is the persistence of corruption, which has discouraged foreign investors, disheartened foreign donors, and has the potential to deepen social resentment and political anger threatening the Phnom Penh government's political legitimacy. In the short run, Cambodia's political stability will still in large part rest in the strong hands of foreign donors, investors and visitors. If the process of national reconciliation succeeds, Cambodia will in the long run have a good chance to strengthen its state structw·e through economic developm ent and political liberalization. In the medium run, however, things can still go wrong. Everything will depend on the leadership's political will: the prime ministers can co-operate to keep their partnership alive through accommodating each other's political interests, or they can wreck their alliance by Jetting factionalism get out of hand, as pessimists have always predicted.

yanmar's ruling State Law and Order Restoration Council (SLORC) has yet to set a time-table for the eventual return of civilian rule. It has insisted all along that such a power transfer is contingent upon the successful formulation of a 'firm' and 'stable' state constitution. To this end, the National Convention (NC) , which was assigned the task of drafting the 'detailed basic principles' of the new constitution, has been deliberating since January 1993. Questions regarding the time frame for this ongoing process elicited responses indicating that the government is in no hurry to conclude the NC, and apparently no target date was set. Myanmar's foreign minister, in his statement to the

Myanmar

Myanmar Land Area:

678,675 sq km

Population:

43.92 million (1995 estimate)

Capital:

Yangon

Type of Government:

Military

Head of State:

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

Next Election:

Not known

Currency Used:

Kyat

US$ Exchange Rate on 30 November 1996:

5.85 kyat

41

POLITICAl OUTlOOK Third ASEAN Regional Forum on 23 July 1996, mentioned that in the NC proceedings 'about three quarters' of the work 'have [been] covered as far as the importance of the topics are concerned' with only 'a few chapters left'. The government apparently views the NC as the locus of Myanmar's political transition. It has been stated that the NC is the 'disciplined forum for the [political] dialogue' and that the 'primary aim' has been to 'obtain consensus among [the] nationalities' regarding the future constitution. Thus, the ruling junta seems to have no compelling reason to enter into 'tripartite dialogue' advocated by the opposition that would involve SLORC, the 'democracy movement' led by Daw Aung San Suu Kyi, and ethnic nationalities. On the other hand , any action to oppose the NC's work or any attempt to formulate an alternative constitution is taken by the government as a serious challenge to its carefully managed political transition towards a home-grown version of multi-party democracy. Hence, a new law entitled 'The Law Protecting the Peaceful and Systematic Transfer of State Responsibility and the Successful Performance of the Functions of the National Convention against Disturbances and Oppositions', was enacted on 7 June 1996. This law prohibits 'inciting, demonstrating, delivering speeches, making oral or written statements and disseminating in order to undermine the stability of the State, community peace and tranquillity and prevalence of law and order' or 'national reconsolidation'. It outlaws acts that 'undermine, belittle and make people misunderstand the functions being carried out by the National Convention' or 'drafting and disseminating the Constitution' without authorization. The penalties for violations of these prohibitions range from lengthy prison terms for individuals to banning and confiscation of assets for organizations. It appears that this law is directed against Daw Aung San Suu Kyi and the National League for Democracy (NLD) as well as the 'political defiance' strategy pursued by the dissident students and the constellation of expatriate opposition groups. Lately, the government has attacked the political defiance campaign, reportedly launched by the exiled opposition since 1993 and based on 'non-violent resistance', as subversive and destabilizing. As for Myanmar's foremost dissident Daw Aung San Suu Kyi, the weekend political assemblies conducted in front of her residence since her release from house arrest in July 1995 were tolerated despite a tense episode in the last week of May 1996 when a meeting at her residence of the party's representatives who were elected during the May 1990 elections was thwarted by preemptive detention of over 200 prospective participants for what the authorities described as temporary questioning. Thereafter, the government launched a media blitz against the NLD leadership and its foreign sympathizers. Mass rallies were organized all over the country at which the NLD leaders were denounced for their unpatriotic and self-serving acts, and reaffirmations of the progress in all fronts under the present government were solemnly pronounced. This was followed by a nation-wide poster campaign against 'neo-colonialists, foreign stooges and destructionists'. Despite government warnings following the May incident and the existence of the aforementioned law, the NLD refused to abide by standing rules, regulations and ordinances, and attempted to convene a party congress on 27 September 1996. This led to another round of questioning party activists at government 'guest houses' and a blockade of Daw Aung San Suu Kyi's residence. The political temperature remains high throughout

42

INDOCHINA AND MYANMAR October as NLD deputy-chairman U Kyi Maung was briefly held for questioning by authorities in relation to sit-in demonstrations by university students against alleged police brutality following a quarrel at a restaurant. Such incidents are not helpful in attracting increased foreign investments, and hinder the government's developmental efforts that are implemented mainly tlu·ough infrastructure projects. However, it seems that the government has to respond in a decisive and authoritative manner to what was perceived as provocations by the NLD and can ill afford to be seen as weak and ineffectual. Given the spectre of the 1988 upheaval in which a minor incident snowballed into what were perceived as catastrophic events, it is highly likely that the government would do everything in its power to forestall the mobilization of the opposition forces in general and the NLD grassroots in particular. Government spokespersons have been saying that future governmental action depends upon the 'other side'. On her part, Daw Aung San Suu Kyi has reportedly declared that the NLD would 'eventually convene another congress' without seeking permission. As such, her weekend meet-thepeople sessions are unlikely to be allowed to continue and if she and the NLD leaders remain intransigent, eventual de-registration of the party may come about. Compared to the resurgence of domestic legal opposition , armed opposition appears to have been effectively neutralized by SLORC's carrot and stick approach to 'national reconsolidation'. The promise of regional development and some participation in the governance and politics of their respective communities, coupled with heavy military pressure, have won over almost all major armed groups. The powerful Mong Tai narco-army (MTAI of Khun Sa from the Golden Triangle became the latest convert to the 'legal fold ' in January 1996. A major portion of the breakaway faction of the MTA, which vowed to continue fighting for Shan independence, was reported to have joined the Shan State Army that had made peace with the government. The Karen National Union (KNU}. whose strength was greatly reduced by the defection of its Buddhist rank-and-file to the government side in early 1995, has been negotiating intermittently with the government on the terms of peace settlement and poses little threat to the state. Only the All Burma Student Democratic Front (ABSDF) remains defiant after its t\¥0 factions were reconciled at the reunification congress of September 1996. None the less, plagued by disease, defections, loss of sanctuaries, and dwindling material resources, the ABSDF is hardly a significant military threat to the government. The Karenni National Progressive Party (KNNP) , which resorted to armed struggle three months aft er reaching a peace agreement in March 1995, is under considerable m ilitary pressure and is being increasingly marginalized. In fact, the numerical strength of the armed opposition has probably been reduced by over 80 per cent since 1988. Given that the army's strength has been repo1ted to have increased by more than 50 per cent in the same period, insurgency has become more of a developmental obstacle than a serious military threat. Further attenuation of ethnic rebellion will be determined more by economic growth with its concomitant regional developmental spinoffs than by military operations. Myanmar's external relations with China and ASEAN states have made steady progress over the eight years of SLORC rule. Myanmar, which has all along emphasized cordial bilateral relationships with neighbours and regional states, has also made considerable

43

POLITICAL OUTLOOK

efforts towards attaining ASEAN membership. Myanmar's Prime Minister and SLORC Chairman Senior General Than Shwe was invited by the host country to attend the first gathering of leaders from the ten Southeast Asian nations, held on the occasion of the Fifth ASEAN Summit Meeting in mid-December 1995 at Bangkok. Furthermore, Myanmar, in an unprecedented move, joined in the signing of the Southeast Asia Nuclear-Weapon Free Zone (SEANWFZ) treaty at the Bangkok summit. Myanmar's Foreign Minister U Ohn Gyaw- in an interview with the Nation newspaper after the summit - referred to the 'shared destiny' of the ten Southeast Asian nations, adding that Myanmars 'feel that we are a Southeast Asian nation and we would like to aspire to the prosperity of Southeast Asian nations'. Most observers believe that both economic and political (domestic as well as international) imperatives are behind Myanmar's move to integrate itself with ASEAN. When Myanmar was conferred observer status in ASEAN at its twenty-ninth Annual Ministerial Meeting (AMM) on 20 July 1996, it became a member of the ARF as well. During the 22-23 July 1996 ARF meeting in Jakarta, ASEAN ministers brushed aside the criticisms of Western dialogue partners who had questioned the 'constructive engagement policy' of ASEAN member states towards Myanmar and had expressed reservations about giving observer status to Myanmar. Indonesia's Foreign Minister Ali Alatas told the Bangkok Post just prior to the Fifth ASEAN summit that one 'must be able to distinguish certain problems which are bilateral in nature and questions which relate to relationships between two countries or two regions.' In economic terms, the obvious difficulty standing in the way of Myanmar becoming a full member of ASEAN is the developmental gap between it and other members. The shortened lead time for the introduction of the ASEAN Free Trade Area, which entails tariffs reduction to a maximum level of five per cent for intra-ASEAN trade by the year 2003 , is a tough act to follow for Myanmar, which is currently trying to open up its economy. Moreover, Myanmar has yet to introduce currency convertibility, which seems to be the norm for the ASEAN states. Myanmar must also prepare itself sufficiently for engaging in extensive and intensive ASEAN economic, diplomatic and political activities involving hundreds of meetings annually at various levels of officialdom, and to subscribe to a plethora of norms, rules and regulations as well as to support the grouping's stand and views on a multitude of international issues. On this score, Brigadier David Abel, Minister of National Planning and Economic Development, has reaffirmed his country's commitment to 'play by the rules '. The question of becoming a full-fledged member of ASEAN seems to be just a matter of time for Myanmar. According to Bangkok Post, U Ohn Gyaw handed over the application for ASEAN membership during Senior General Than Shwe's visit to Malaysia in August 1996. Quoting ASEAN Secretary-General Ajit Singh, the newspaper reported that Myanmar had sent a letter indicating its desire to join the regional grouping by July 1997. The idea of completing the ASEAN 10 by the thirtieth anniversary of the organization was reported to have been supported by the Malaysian Prime Minister. However, after news reports concerning the statement by President Ramos of Philippines that ASEAN might review its policy of constructive engagement were publicized by Western news agencies, the Malaysian

44

INDOCHINA AND MYANMAR Foreign Minister reminded observers that although Myanmar' s entry is still open ASEAN needs a full consensus on this matter. It is likely that a number of 'technical issues' must be settled before a full membership is granted and preparations on both sides may require a time frame of more than a year. On the other hand, both in the United States and the European Union (EU) there have been rumblings about possible sanctions over alleged human rights abuses and supposedly harsh suppression of democracy activists. The U.S. Congress in mid-September 1996 passed the White-House supported Cohea-Feinstein Amendment, attached to the 1997 foreign aid bill, that called for contingent sanctions depending upon the future behaviour of Myanmar's government towards the opposition. In an apparent response to the second crackdown on NLD activists, President Bill Clinton also signed a proclamation on 3 October 1996 'suspending the entry into the United States of persons [from Myanmar] formu lating, implementing or benefiting from policies that are impeding the transition to democracy'. Myanmar immediately retaliated in kind. On 28 October, the EU imposed visa restrictions similar to that instituted by the United States on Myanmar officials and suspended all highlevel EU visits to the country. However, economic sanctions, seen by many Western opinion leaders as ineffectual and detrin1ental to business interests of both the sponsoring state as well as its allies, do not appear to be in1minent. Moreover, Myanmar leaders have indicated that they are prepared to weather the storm through self-reliance and support from friendly regional states which have rejected sanctions in favour of constructive engagement. All in all, it seems that in the short term Myanmar's domestic political scene would continue to reflect the underlying tensions between the government and the opposition led by Daw Aung San Suu Kyi. Given international concerns on her freedom, it is highly unlikely that the latter would be re-arrested. The opposition is likely to continue testing the patience and resolution of the government and the latter will respond firmly but cautiously. In countering the opposition, the government will, on the one hand, try to win the hearts and minds of the polity through economic development, and on the other, employ its vast repertoire of legal instruments against any transgression of existing rules and regulations. The political infrastructure and logistics of the opposition movement ru·e most vulnerable and may increasingly be subjected to neutralizing actions. Control , management, and dissemination of information is likely to become more important in future contestations between government and opposition. This is exemplified by the promulgation of the Computer Science Development Law on 20 September 1996 whkh prohibits - with harsh jail terms for violations - the utilization of computer network or any information techno!· ogy to cru-ry out 'any act which undermines State security, prevalence of law and order and community peace and tranquillity, national unity, State economy, or nationaJ culture'. As for external relations, Myanmru·'s orientation towards regional integration within the ASEAN framework will gain momentum and bilateral relations with regional states will be further strengthened provided the current pace and direction of political transition continues and relations w ith the United States and EU do not deteriorate further. Myanmar's entry into ASEAN may not materialize in mid-1997 but it is unlikely to be delayed for more thru1 two years.

45

ECONOMIC OUTLOOK

1997-98

ECONOMIC OUTlOOK THE ASEAN SIX Tan Kim Song Cyclical Slowdown

48

o some, 1996 was the year of reckoning for the economies of the Association of Southeast Asian Nations (ASEAN): after a decade of exceptionally high growth, the region appeared to be running out of steam and was finally slowing down. In countries like Singapore and Thailand, the slowdown turned out to be much sharper than expected, sparking concerns about the health of the underlying fundamentals. Sceptics of the so-called 'Asian miracles' are quick to paint a doomsday scenario, pronouncing 1996 the beginning of the end of ASEAN's high growth era. They contend that the problems faced by ASEAN are structural in nature, not cyclical, and therefore cannot be resolved within a few years. Manifestations of structural illness, they claim, are there for all to see: productivity is low; most industries remain labour-intensive; there is insufficient capacity in these economies for technological change and innovation, and the constraints posed by the infrastructural bottlenecks are insurmountable. The issues should be seen in perspective. Admittedly, some evidence of these 'structural' symptoms exists, but similar obstacles are found elsewhere too. Structural problems are part and parcel of any growing economy. ASEAN economies have been confronted with the challenge of upgrading their industrial structures since the early 1970s. They will continue to face the same challenges as long as they keep growing, even if the exact nature of the problems differ. The slowdown in 1996 was largely cyclical, with a small structural component. Indeed, structural downturn, almost by definition, does not happen overnight. The fact that exports dropped so abruptly in some ASEAN countries last year supports the view that the downturn was driven primarily by cyclical changes. Changes in both external and domestic conditions converged to bring about ASEAN's cyclical slowdown in 1996. With the potential growth rates in most economies estimated at no more than 7.5 per cent, it is hardly surprising that the production capacity should exhaust itself and that overheating pressures should start to build up, after two years of near doubledigit growth. This alone would have been enough to put a brake on the region's growth momentum temporarily. But the more immediate cause for the slowdown was externally-driven. Growth in Group of Seven (G7) countries, which make up the largest export market of ASEAN, fell after two years of strong performance. The slump in the electronics industry in particular took a severe toll on many of the ASEAN economies. Exchange rate movements did not favour the region either. Since most of the ASEAN currencies are pegged in some way to the U.S. dollar, it is not surprising that their export· competitiveness should suffer as the greenback continued to strengthen in 1996 (especially against the yen). An additional factor that moderated growth was the reduced inflows of direct foreign investments (DFI). which had soared in the previous two years.

ASEAN REGION

TABLE 1 Economic Outlook Indicators (Percentage per annum) GOP Growth

CPI Inflation

CAD/GDP

1995 1996 1997 1998 1995 1996 1997 1998 1995 1996 1997 1998 Indonesia

8.1

7.8

7.5

7.8

9.4

7.4

6.5

6.8 -3.9

-4.2 -3.8 -4.0

Malaysia

9.5

8.2

8.0

8.0

3.5

3.6

3.6

3.8 -8.4

-5.8 -4.5 -4.2

Philippines

4.8

5.6

6.2

6.5

8.1

7.9

6.4

6.5 -2.75 -2.5 -3.2 -4.0

Singapore

8.9

6.3

7.3

7.5

1.7

1.8

2.2

2.5 17.7

16.0 15.2 17

Thailand

8.6

6.8

7.5

7.5

5.8

5.7

4.5

4.0 -8.1

-8.3 -6.2 -5.5

NoTE: Figures for 1996, 1997 and 1998 are forecasts.

But what looks like an inevitable slowdown is also a timely reprieve. It gives ASEAN countries a much-needed breather to reorganize their production activities, before moving on to a more sustainable growth path.

xternal conditions are poised to improve over the next two years. The European Union looks set to post higher growth while the United States is expected to maintain its growth momentum. The only G7 country that is predicted to see slow growth is Japan. The electronics industry is expected to recover by the first quarter of 1997. The U.S. book-to-bill ratio - an indicator of electronics demand - has been rising steadily, especially since the second half of 1996. Given the usual three to six months lag, the stronger demand in the United States should hit the factory floors in most ASEAN countries before the second half of 1997. ASEAN should also be helped by further diversification of its export markets. Although the United States, Japan and the European Union (EU} remain important, their shares in ASEAN's export markets have been falling over the years, in relation to the growth of the Asia-Pacific market. The higher growth rate projected for Asia (non-Japan} this year (8 per cent} is therefore welcome news to ASEAN (G7 countries are expected to grow by 2.3 per cent in 1997}.

49

ECONOMIC OUTlOOK In addition, ASEAN countries can look forward to trading and investing more among themselves. Intra-ASEAN trade growth should continue to rise as more measures to liberalize intra-regional trade and investment are undertaken. Under the ASEAN Free 'frade Area (AFTA) agreement, tariffs on most goods and services originating from member countries are to be slashed to 0- 5 per cent by 2003. Further efforts are being made to increase the coverage of the scheme and to cut down the number of 'sensitive' items which are exempted from the tariff-reduction plans. Last year, a similar preferential treatment scheme for intra-ASEAN investment was launched, taking regional integration one step further.

bared vulnerability to external demand suggests that ASEAN countries will, by and large, continue to grow in tandem. But the characteristics of each individual economy have also become more distinct over the years. Just as they did not react to the external slowdown in exactly the same way last year, so their recovery in the next two years w ill likely follow different paths too. In this, the ASEAN countries fall into three groups. Thailand and Singapore were caught in harder-than-expected landings in 1996. Having made more inroads into high value-added production, Singapore is cushioned against further decline as the newly-opened economies such as China, India and Indochinese states forge ahead in the competition for low-end exports. In contrast, Thailand will face more adjustments ahead, since a larger proportion of its products remains low value-added. In the case of Malaysia and Indonesia, the former successfully engineered a soft-landing in the economy, confounding critics who had predicted a meltdown at the beginning of the year. With fire-fighting out of the way, it can now focus on tackling the longer-term issues, sean countries are keenly aware of especially Prime Minister Mahathir Mohamad's ambitious the need to increase their supply-side project to make Malaysia a developed country by 2020. Indonecapacities and to switch into production sia did a credible job balancing the conflicting demands of that offers them 'dynamic' comparative cooling off an overheating economy and preventing a hard advantages. landing. However, the ghost has not been completely exorcised. As the new year begins, it faces a similar policy dilemma as it did last year. The Philippines and Brunei face very different circumstances from the other four. Starting from a low base allows the Philippines to register higher growth despite the onslaught of the region-wide decline. In the next two years, however, it will be confronted increasingly with the problems that have afflicted other fast-growing ASEAN economies: overheating pressures, infrastructural bottlenecks, and widening current account deficit

ASEANRoads to Recovery

(CAD). Brunei's production, meanwhile, remains heavily concentrated in oil and gas

industry, and therefore hostage to fluctuations in world oil prices. Efforts to diversify the production base have so far met with limited results.

50

ASEAN REGION c=·.· ===:: ~~~~~~~~~ ~

I ;~

J tructural impediments, though less important in ASEAN than in other regions,

cannot be brushed aside completely. The key question here, however, is not whether ASEAN economies face any structural problems today, but whether they have the will and the capacity to overcome these problems. The answer is clear. ASEAN cotmtries are keenly aware of the need to increase their supply-side capacities and to switch into production that offers them 'dynamic' comparative advantages. High savings and high investment, especially in human capital investment, remain a central feature of these economies. Few other regions take the concept of productivity improvement more seriously. Last year, for example, a separate statutory body was set up in Singapore with the task of raising the level of total factor productivity (TFP). Ln Malaysia, the Seventh Five-Year Plan has also set specific targets for TFP growth from now until 2000. The market-friendly culture that permeates the region facilitates various structural reforms needed to increase the production efficiency of the economies. ASEAN's willingness to engage in serious trade liberalization negotiations at their annual ministerial meetings speaks volumes about such possibilities. Given no major threat to regional security, the outlook remains optimistic.

be Brunei economy remains heavily dependent on the oil and gas sector as it moves into 1997-98. While the share of the non-oil and gas sector has risen to 45 per cent of gross domestic product (GDP) in 1995 (from 27 per cent in 1984), it is still too narrow a base to shield the economy from fluctuations in the world oil market. During the Sixth National Development Plan period (1991-95). the oil and gas sector (which includes related activities such as wholesale trade and transportation) declined by an average of 1.5 per cent a year, partly because of low oil prices and partly because of Brunei's oil conservation policy, which restricted the increase in oil supply. Thus, even though the non-oil sector grew by 5. 7 per cent a year during this period, the economy as a whole saw no more than 1.5 per cent of growth per annum on average. Diversification out of the oil and gas sector, especially into manufacturing and other private sector activities, remains the focus of Brunei's economic policy in the next two years. More than half of the non-oil sectors expansion in the past few years has come from public sector employment (which attracts Bruneians because of the high pay and good fringe benefits it offers). with another significant portion being contributed by the construction and real estate sectors. Meanwhile, the primary and the manufacturing sectors grew only modestly. With oil prices continuing to be volatile, Brunei's growth pattern in the near term is not likely be very different from the last five years. Gross national product (GNP) will continue to exceed GDP by a large margin because of the huge net factor payments that Brunei receives from its investments abroad. Over the past few years, the size of such payments typically exceeded half of GDP

Summary: Meeting Structural Challenges

Brunei Darussalam: Seeking to Diversify

51

ECONOMIC OUTLOOK Given that most consumption goods in Brunei are imported, inflation is largely determined externally. Like Singapore, the imported prices in Brunei are generally kept low by a strong currency made possible by its healthy balance of payments position. Price control on a number of items in the Consumer Price Index (CPI) basket also helps keep the inflation rate low. On average, the inflation rate for the past decade was about 2.5 per cent a year. However, increased demand for non-traded goods such as education, housing and other services will likely push the domestic inflation rates higher in future. In 1995, such demand, together with increases in a number of import duties, sent the inflation rate up to 6 per cent. The Brunei dollar is pegged one-to-one to the Singapore dollar, which is the only intervention currency used by the Brunei Currency Board, but commercial banks are free to set the exchange rates against other currencies. Given the strong capital inflows, appreciations against these currencies are expected to continue. Since 1990, the Brunei dollar has strengthened by more than 10 per cent against most of these other currencies. NOTE: Part of the section on Brunei is based on IMP (1996).

Indonesia: Steady, Despite Political JiHers

ndonesia surprised many people in 1996 with the strength of its export sector and the amount of capital that continued to flow onto its shores. Jakarta was able to hold its own on exports, despite a general slowdown in the region. Until June, for example, the non-oil domestic exports were still growing at close to 15 per cent year-onyear- the average growth rate since 1989. Meanwhile, the approval rate for direct foreign

FIGURE 1 Indonesia: External Trade 5.0

-

.r.

c:

0

4.5 4.0

E

3.5