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SEPTEMBER 1 , 2000 VOL. 26 NO. 34 | SEARCH ASIAWEEK


Antonio Pagnotta da Fonseca.
The digital divide may help foster a "two-tier'.

Southeast Asia Adrift
But the powerhouse economies of the region's Northeast may provide a lifeline
By ALEJANDRO REYES Bangkok

ALSO:
Tariff Troubles:
Exemption requests are undermining AFTA
'We Must Stick Together': ASEAN's top minds consider how to keep the organization relevant

Surin Pitsuwan seemed to be waging a personal crusade at the recent ASEAN Ministerial Meeting in Bangkok. The Thai foreign minister, who chaired the conclave, seized every opportunity to accentuate the positive. At times, he got carried away. On the first day, the dashing Surin emerged from a closed-door retreat in an ebullient mood. Wearing an open-necked shirt and a jacket, he told reporters he had asked his colleagues' permission to use the word "splendid" to describe the ties-off session. "We have taken the retreat [a practice started only in Singapore last year] to a higher plane," he crowed. "We opened up. We were candid. We were extremely honest toward one another."

We got it, Khun Surin. It wasn't too long ago that the Thai minister upset some of his colleagues by calling for greater flexibility in ASEAN's policy of non-interference in the affairs of other members — a core principle since the group's founding 33 years ago. After rocking the boat, Surin has, since serving a term as its captain last year, sought to show that the ship had stabilized, if not moved ahead.

Yet consider the story of another "boat-rocker." In his annual report to the ministers, ASEAN Secretary General Rodolfo Severino caused a minor stir when he warned that unless members hastened economic liberalization, they risked getting left behind. He pointed out that, despite a robust recovery from the 1997-98 Crisis, foreign direct investment had fallen from $21.5 billion in 1997 to $13.3 billion last year. Most of ASEAN's 10 economies were attracting fewer funds than before the crash. The competition, Severino added, was only going to get tougher. "ASEAN has to respond with deeper integration, closer cohesion and greater openness in fortifying the region's competitiveness and improving the lives of its people," he argued. "On this response hangs the future of Southeast Asia." Severino's report was at first deemed by some members too sensitive to be published, as it normally is. Only after it was leaked to the media was it formally released.

A WIDENING GAP
In key economic area, Southeast Asia has been either hurt more by the Crisis than Northeast Asia, or is rebounding less quickly from the resulting recession:
GDP Growing (%)
1996 1997 1998 1999
Indonesia 7.8 4.7 -13.2 0.2
Malaysia 10.0 7.5 -7.5 5.4
Philippines 5.8 5.2 -0.5 3.2
Singapore 7.5 8.0 1.5 5.4
Thailand 5.9 -1.8 -10.4 4.1
China 9.6 8.8 7.8 7.1
Japan 5.0 1.6 -2.5 0.3
South Korea 6.8 5.0 -6.7 10.7
Per Capita GDP ($)
1996 1997 1998 1999
Indonesia 1,155 1,079 615 673
Malaysia 4,908 4,772 3,389 3,429
Philippines 1,152 1,117 868 1,009
Singapore 25,348 25,652 21,821 21,837
Thailand 3,084 2,460 1,819 1,949
China 667 726 779 783
Japan 36,572 33,295 29,925 34,715
South Korea 11,423 10,361 6,829 8,640
Exports ($ million)
1996 1997 1998 1999
Indonesia 50,188 56,298 50,371 51,435
Malaysia 76,881 77,881 71,846 79,175
Philippines 20,543 25,228 29,496 34,207
Singapore 126,010 125,746 110,379 115,639
Thailand 54,408 56,652 52,747 56,722
China 151,077 182,670 183,527 194,539
Japan 400,280 409,240 374,040 403,690
South Korea 129,968 138,619 132,122 145,334
Foreign Direct Investment ($ million)
1996 1997 1998
Indonesia 6,194 4,673 -356
Malaysia 5,078 5,106 3,727
Philippines 1,517 1,222 1,713
Singapore 7,884 9,710 7,218
Thailand 2,336 3,733 6,969
China 40,180 44,236 45,460
Japan 7,085 5,605 10,239
South Korea 2,325 2,844 5,143
Sources:Asian Development Bank; International Monetary Fund; Ministry of Finance,Japan; Asiaweek Research (Asiaweek Chart)



Despite three decades of remarkable progress, ASEAN today is dogged by a distinct air of disarray. While it has arguably been the key mechanism for fostering regional cooperation, peace and security, the association now looks sadly dated, often emasculated and out of touch with the times. Efforts to proclaim its revival, however sincere, ring hollow even to those who care. The critics' list of faults is long, but here are the main arguments: The Crisis showed that ASEAN solidarity, when the chips are down, is little more than skin deep. Members' slavish adherence to non-interference and decision-by-consensus has meant inaction in tackling even pressing problems like the haze polluting much of the region and the traumatic civil turmoil in East Timor last year. The group has focused much energy on a grand tariff-reduction plan known as the ASEAN Free Trade Area (see story page 51). But it has been notably slow on other fronts such as infrastructure, human resources and technology development, where other emerging economies have forged ahead. And now that the group is a diverse mix of ten countries — from the appallingly opaque to the wildly democratic, the dirt poor to among the world's richest — it cannot hope to move nimbly or even together. Yet its future depends, more than ever, on closer cooperation.

Singapore Foreign Minister S. Jayakumar captured the ASEAN predicament best at the Bangkok meeting. "In 1998, I pointed out that ASEAN faced a crisis of confidence," he told fellow foreign ministers. "Today, we must ask ourselves why the regional economic recovery has not translated into a restoration of international confidence in ASEAN. We may not like the perceptions of ASEAN as ineffective and a sunset organization. We may question whether they are justified. But they are political facts. Perceptions can define political reality." The former law professor concluded: "If we continue to be perceived as ineffective, we can be marginalized as our dialogue partners and international investors relegate us to the sidelines."

That may already be happening. "Multinational investors are looking north instead," says a Singapore-based senior executive with a European company. The attraction: bigger, more powerful economies that are on the move. While Japan has been frustratingly moribund for at least a decade, investors are starting to notice opportunities as companies and banks get serious about restructuring and markets open up. The budding reconciliation in the Korean peninsula is tempering the risk of investing, while Seoul's serious drive to push structural reforms has been noticed. And while China's potential is obvious, especially with its expected accession to the World Trade Organization, its smooth absorption of Hong Kong and possible rapprochement (though not immediately) with economic powerhouse Taiwan are additional attractions. In short, while the Northeast is bubbling with excitement, post-Crisis Southeast Asia's image remains badly deflated.

All this explains why the hottest topic in Southeast Asian policy circles is "ASEAN plus three" (APT), the new mechanism that brings China, South Korea and Japan together with ASEAN. Call it a dying ASEAN's new lifeline. And if APT can evolve into an East Asian Community, the bigger grouping may prove a real lifesaver. Singapore learned long ago that its survival depended on plugging into the global grid, by making inroads in markets everywhere. So the Lion City has been in the forefront pushing ASEAN link-ups with both Europe and Latin America. Singapore even upset some of its neighbors last year when it said it was negotiating a free-trade pact with New Zealand. For ASEAN, hitching its wagon to the "plus three" could be the solution to its deepest woes.

The inaugural APT summit in Manila last November definitely had regional strategists buzzing. Says U.S. East Asia point man Stanley Roth: "I have found a renewed sense of pride in ASEAN that this meeting took place and a sense that ASEAN is going to resume where it had left off in 1997, which is to take a greater role in regional issues." Roth sees a bright future for APT and the other large grouping that has ASEAN as its base — the ASEAN Regional Forum (ARF), a 23-member security panel that admitted North Korea last month. "I suspect when we look back 30 or 40 years from now, we'll be seeing much stronger institutions," said Roth. Adds Stanley Fischer, deputy managing director of the International Monetary Fund: "There are a lot of people in ASEAN, but the four largest economies in the region — Japan, Korea, China and India — are not in it, so open trade with them and access to those larger markets are well worthwhile."

That may be. But for now, ASEAN has urgent problems to face. To be sure, many are beyond the control of the group as a whole. Take the seeming drift and lack of leadership since the Crisis, when "big brother" Indonesia, the group's largest member, took a bad tumble that led to the fall of president Suharto and the rise of sectarian strife across the country. The trouble is that there is no obvious alternative. Thailand and the Philippines cannot leverage their democratic credentials into influence because they too are beset by domestic political instability. Though wealthy, Singapore and Brunei are too small. Malaysia may have the daring, but with veteran Prime Minister Mahathir Mohamad at the helm, Kuala Lumpur is unlikely to provide progressive directions. Says Carolina Hernandez, president of Manila's Institute for Strategic and Development Studies: "ASEAN needs to reinvent itself not just in terms of its norms and codes, but even in the way members deal with one another. Leadership may have to be diffuse. One country can be a leader in one issue in which it has the competence, resources and interest."

Others are not convinced ASEAN can move forward without a de-facto first-among-equals. "Who is going to take the bold initiatives?" asks Pranee Thiparat, director of the Institute of Security and International Studies at Bangkok's Chulalongkorn University. "Thailand has been burned on various fronts [when it tried to take a leadership position]. Generational change will help us become bolder."

But ASEAN by nature is not programmed to act boldly. Take East Timor. Amid the bloody turmoil there last year, the assocation seemed to play fourth fiddle to the United Nations, Australia, New Zealand and the U.S. "ASEAN failed to take ownership of the issue," says Simon Tay, chairman of the Singapore Institute of International Affairs. Even the ARF wasn't ready to handle the problem, though it was a logical umbrella group to do so. Others reject such criticism. "ASEAN was never set up to interfere in the internal political affairs of its members," says former Australian prime minister Bob Hawke. "It's stupid to say ASEAN didn't do what it wasn't set up to do and what it has committed itself not to do. ASEAN responded well within the appropriate processes."

If the association's non-interventionist faith is a strength-sapping convention, so is its consensus-driven decision-making. All the more so now that ASEAN has reached its full complement of 10 states (East Timor may eventually make it 11). The wider diversity seems to have further stymied the prospect of one member staking out pole position. In Bangkok, there was much talk of a "troika" mechanism, which would allow the sitting chairman, along with his immediate predecessor and successor, a freer hand in dealing with crises. While the idea is vague and untested, it may help the chair resolve disputes.

The troika notion was borrowed from the European Union. But few expect ASEAN's version to be as effective as the E.U.'s. "We're very much behind Europe in terms of transparency and democracy," says Severino. "But you have to work with what you have." He doesn't agree that ASEAN is now divided between older, wealthier members and newer, poorer ones. "The gap between the poorest old member and the most advanced new member is not all that wide," he insists. Says Jawhar Hassan, director-general of Malaysia's Institute of Strategic and International Studies: "Some older members have more poor than the newer members."

Still, there are concerns that latent fault lines have widened because of the Crisis. In particular, Myanmar and the Indochina nations may balk at any bid to promote greater political openness or exchange. They are having a hard time just meeting market-opening commitments. "One can argue [that bringing in Vietnam, Laos, Myanmar and Cambodia] was too fast," Prime Minister Goh Chok Tong told Asiaweek last year. "Certainly, we are weighed down by having to integrate these economies with our own. For the moment, we recognize we have a two-tier ASEAN."

Bridging the new member-old member gap is proving one of ASEAN's toughest challenges. It could lead to further divisions, say, along political lines if the more democratic countries clash with the authoritarian ones. The digital divide could complicate things even more. "The newer members came in because they pragmatically thought there would be benefits from ASEAN," says Malaysia's Jawhar. "But due to the Crisis, the benefits they see have not been sufficient. We older members must do something."

Indeed, ASEAN members themselves have tended to fuel high expectations. They have regularly issued declarations outlining ambitious goals and professing harmony that had little grounding in reality. Some observers have dismissed the 1998 Hanoi Plan of Action, which urged measures to boost cooperation, engagement and integration, as the latest such exercise. Members, however, have agreed to review the progress in implementing the plan in 2001. Says Hernandez: "It's good that there is some kind of roadmap, so people can hold their leaders accountable."

ASEAN, though, could find itself looking decidedly pale against the APT, which while bigger, may benefit from having larger players. Despite the rivalry between China and Japan, the fledgling group has surprised many by how fast it has got off the ground. Within months of the Manila summit, trade and economic ministers held meetings and signed accords on regional swap arrangements and monetary cooperation. ASEAN backers insist the APT is no substitute for the smaller group. The bigger body allows ASEAN a wider stage and greater influence. Still, if the APT arrangement takes off and the Northeast engine pulls the Southeast along, a redundant ASEAN may be left standing still — or worse, wither away.




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