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Asia Pacific Security Outlook 1998

Regional Overview

At the beginning of 1998, the Asia Pacific security outlook presented two contrasting faces. International political relations among the major states were never better, providing the basis for a relatively optimistic outlook. Yet the region's worst economic crisis in decades threatened a traditional basis for security optimism: the Asian economic success story.

The dimensions of the financial crisis were still unfolding at the beginning of 1998, making hazardous any predictions about their full scope, depth, and duration. Throughout the latter half of 1997, governments, international organizations, and most mainstream economic analysis had consistently underestimated the seriousness of the crisis. International bailout programs in Thailand, Indonesia, and South Korea, designed to impress domestic and foreign investors, had failed to restore confidence. The region's governments increasingly came to the conclusion that even once market stability was achieved, the restoration of economic confidence and sound growth would come only after two, three, or even more years of substantial economic pain.

The Financial Crisis as a Security Problem

In the minds of the analysts associated with the Asia Pacific Security Outlook, the financial crisis is a serious security concern and should be added to the previous year's "watch list" issues: the Korean peninsula, large power relations, territorial disputes, and weapons procurements. It is frequently pointed out that many of the region's macroeconomic fundamentals remain strong—high savings, low inflation, and balanced government budgets. If, on the one hand, the affected countries are able to make appropriate changes in policies or practices and the world markets for capital and goods remain open to them, the region may reemerge from the crisis with a sounder base for sustained growth than before. On the other hand, the crisis could continue to spread as the result of a combination of policy failures and contagion, adjustments may not be made, or international support in the form of long-term capital availability or market access may not be adequate. If prolonged, the sudden downturn in the region's economic fortunes could have a devastating impact not only on individual lives and fortunes—that is, on individual or human security—but also on national politics, regime stability, and international relations. Three possible impacts are considered here.

Socioeconomic discontent threatening domestic stability.

This is the greatest security challenge arising from the economic crisis. High growth in the past has increased expectations of economic performance, particularly among the young, and progress came relatively easily as changes in global competitiveness and open world markets favored many Asian economies. But the promise of higher living standards is now compromised as millions of East Asians face the loss of jobs and income. Unemployment and inflation rates are expected to rise steeply in 1998 to levels unprecedented in recent times in Indonesia, South Korea, and Thailand. The economic pain will increasingly affect the previously upwardly mobile middle and professional classes, key bases of political support in most Asian societies. Domestic political leadership or even political systems, many of which base their legitimacy on economic performance, will come under increased pressure. The governments with more flexible political systems appear to be in a better position to shift policies. But even for those governments whose legitimacy is based in part on noneconomic factors such as popular election, a prolonged crisis may result in growing disenchantment with the political system and a corresponding nostalgia for strongman leadership associated with better or at least improving times, such as those of Park Chung-hee in South Korea or Sarit Thanarit in Thailand.

Increased tensions in relations within Asia.

These could arise from a number of factors. Anxieties and nationalism may rise in states that have suffered relative declines in their positions compared to their neighbors. Weakened leaders or governments may be tempted to blame outsiders or look for outside diversions to deflect domestic criticism. Expulsions of foreign workers at a time of reduced opportunities in their homelands could exacerbate tensions between host countries and sending countries. Internal ethnic tensions could spill over into international relationships or create waves of new refugees.

Increased tensions between Asian countries and the United States.

In Asia, such tensions could arise over U.S. support for painful International Monetary Fund (IMF) austerity measures or American purchases of Asian assets at bargain prices, affronting nationalistic sentiments. In the United States, increased Asian trade surpluses, an inevitable short- and medium-term consequence of the crisis, could result in a severe backlash. Other sources of tension lie in Asian perceptions of a lack of U.S. support, a problem that is particularly acute in Thailand, and even suspicions that the United States engineered or at least welcomed the crisis to cut Asia down to size. In contrast, public perception in the United States is that American taxpayers are being asked to foot the bill to bail out profligate borrowers in Asia as well as Western commercial lenders who made unwise loans.

On the positive side, the financial crisis not only could result in basically strong future economies, but also could stimulate strengthened regional cooperation. The crisis called attention to the close linkage among the Asian economies, and has resulted in contributions to the IMF packages for Indonesia, South Korea, and Thailand from those regional economies with stronger reserve positions, including Brunei, China, Japan, Malaysia, Singapore, and Taiwan. While the global institutions rather than regional institutions have led the response, the Asia Pacific Economic Cooperation (APEC) Leaders' Meeting in Vancouver in November 1997 agreed on enhanced monitoring and some kind of supplemental swapping arrangements, with details to be worked out. For the present, most of the implications of the financial crisis are on the downside, but in the longer run, lessons and new forms of cooperation drawn from the crisis could enhance the region's economic and security outlook.

The 1997 Watch List Issues

Turning to the 1997 watch list items, virtually all analysts saw a significant improvement in large power relations, marked by the change in Sino-American relations following the annual renewal in the summer by the United States of China's nondiscriminatory trade status. Analyst opinion on whether there had been an improvement on the other issues—the Korean peninsula, territorial questions, and weapons proliferation—was more cautious. In all cases, there were noticeably fewer highly visible incidents or developments to attract public and media attention. Nevertheless, all watch list issues continue to bear close watching. Nothing has happened on the fundamentals of any of these issues that would reduce their potential danger to the regional security outlook.

Large Power Relations.

The year 1997 was notable for its many bilateral meetings among leaders of the four largest countries of the region, China, Japan, Russia, and the United States, as each bilateral relationship improved simultaneously with the others. This was suggestive of the policy emphases of the large powers: China was very active diplomatically, seeking improvements in its relations with neighbors on a broad front. Following the Denver Group of Eight summit in July, Japan took a strong interest in improving relations with Russia, its long-standing territorial grievances having hitherto constrained rapprochement. Russia's reemergence as a diplomatic player can be partly attributed to President Boris Yeltsin's physical recovery and partly to the long-awaited but still fragile stabilization of the Russian economy. U.S. President Bill Clinton, having, early in his presidency, adopted with little success a more confrontational approach to issues with the larger Asian powers, appeared anxious to avoid conflicts and to use positive approaches and personal diplomacy to achieve American goals in the region.

Of the bilateral activities, Chinese President Jiang Zemin's visit to the United States in late October received the most attention as it was the first state visit to Washington by a Chinese leader since the Tiananmen Square incident of 1989 and marked a significant shift in tone in what has been the most troubled bilateral large power relationship in recent years. In March 1996, American warships were sent to the vicinity of the Taiwan Strait during Chinese missile tests in the area. In 1997, however, the smooth handover of Hong Kong and the U.S. continuation of China's nondiscriminatory trade status helped smooth the way for the trip, as did the confirmation of Jiang's leadership position at the time of the 15th Party Congress in September. The trip was marked by an explicit statement of differences on some items and protest demonstrations in most of the cities Jiang visited, but the leaders were both determined to keep the tone of the trip positive and the U.S. Congress was unusually cooperative. Although the results of the trip were more symbolic than substantive, China and the United States both made a number of important gestures, including the lifting of nuclear technology export controls on China by the United States and, after Jiang's visit, the release by China of dissident Wei Jingsheng, who went into exile in the United States. The tone of good feeling is expected to continue in 1998 as both sides prepare for a successful trip by Clinton to Beijing after the November US Congressional elections.

The Boris Yeltsin-Ryutaro Hashimoto "no necktie" summit at the beginning of November 1997 marked a significant shift in a hitherto cool Russian-Japanese relationship. The setting itself, in the Siberian city of Krasnoyarsk approximately equidistant between Moscow and Tokyo, set a tone of compromise. In a pledge that demonstrated just how problematic and antiquated the relationship has been, the two leaders agreed to work toward a World War II peace agreement by the year 2000. In addition to economic agreements focusing on the development of Siberia and the Russian Far East, it was agreed to step up military exchanges. The long-standing territorial dispute, previously an obstacle to improved Russian-Japanese cooperation, was set aside for the time being.

The "strategic cooperative partnership" between Russia and China was highlighted by high-level visits, including Jiang's trip to Moscow in April and Yeltsin's to Beijing in November. The April visit resulted in a five-state agreement reducing military forces along the former Sino-Soviet border, and the November visit yielded a frontier demarcation treaty. During 1997, the two countries also agreed on economic cooperation projects, including a framework accord for building a US$12 billion gas pipeline from Siberia to Northeast China.

The one distinctly negative note in large power relations came in the form of Chinese objections to the new Guidelines for U.S.-Japan Defense Cooperation. This issue cast a slight shadow over Hashimoto's visit to Beijing in early September to celebrate the 25th anniversary of the normalization of Sino-Japanese diplomatic relations. The China, Japan, and U.S. chapters in this report set out these differences in national perceptions. The Chinese regard the guidelines as directed toward China, and particularly toward the Taiwan situation. The Japanese and Americans regard the guidelines as a logical outgrowth of their established alliance, which they believe to be beneficial to regional stability. They made a considerable effort to introduce transparency into the process of preparing the guidelines, setting out an interim report for comment before the final agreement was reached in September. Despite the differences in large power perceptions, the new guidelines did not lead to a crisis in relations. Indeed, Jiang's visit to Washington occurred about a month later with little reference to the bilateral U.S.-Japan Security Treaty and Chinese Premier Li Peng visited Japan in November.

The Taiwan question remains the thorniest problem in China's relations with the United States and Japan. No incidents occurred in 1997 comparable to the Chinese missile tests in 1995 and 1996, and some minor steps improved cross-strait relations, including an opening of limited direct shipping as well as a resumption of semiofficial contacts at a relatively low level in April after a 22-month hiatus. Taiwanese authorities rejected Beijing's suggestions of the Hong Kong model of "one country, two systems" as a desirable formula for cross-strait reunification and continued to push to expand their political relations with other governments. Taiwan's military modernization, the local electoral successes of the more independence-minded opposition Democratic Progressive Party, and increased informal Taiwanese contacts with Asian leaders in the wake of the region's financial crisis are all matters of great sensitivity in Beijing. For the time being, however, officials in Beijing, Taipei, and Washington are exercising restraint in handling the delicate issues relating to future cross-strait relations.

The upsurge in bilateral initiatives among the larger powers reflects the fluid post-cold war environment. All the larger powers are seeking multiple relationships and none wants to be trapped into a permanent or semipermanent hostility. Some sources of tensions, notably ideology, have declined as a factor affecting international relations. This has provided a window of opportunity to build constructive dialogue across long-standing divides, as in the case of Russian-Japanese relations in 1997. But while flexibility and the willingness to engage in constructive dialogues is at an all-time high, suspicions of each other's motives linger beneath the surface. In most cases, truly strategic partnerships, to borrow a phrase used to describe the Russian-Chinese relationship and the aspiration for Sino-American relations, remain to be built, at both the grass-roots level and among the elites.

Korean Peninsula.

The Korean peninsula was also relatively free of incidents in 1997. An improved atmosphere was established by North Korea's January 10 expression of "deep regret" for the intrusion into South Korea waters of a coastal submarine in September 1996. Groundbreaking took place in August 1997 for preparation of the site for the light water reactors being delivered to North Korea under the auspices of the Korean Peninsula Energy Development Organization (KEDO), and after many stops and starts, Four-Party Talks to replace the 1953 armistice agreement finally commenced in Geneva in December 1997. Despite the severe food shortages in North Korea and increasing numbers of defections, most significantly high level ideologue Hwang Jang Yop in February, the Kim Jong Il regime appeared to have fully consolidated its position, and talk of an early North Korean collapse died down. In South Korea, the severe economic crisis at the end of the year turned the country's attention to what for most South Korean citizens was a much more immediate problem.

Absent from the diplomacy surrounding the peninsula was any significant progress in North-South relations. There had been breakthroughs in the early 1990s, most particularly the promise of making the peninsula nuclear free, verified by some form of bilateral inspections, but these came to naught after tensions arose over the North's nuclear program. The December 18, 1997, election of Kim Dae Jung as president of South Korea provides the country with a leader who may be more acceptable to the North as a dialogue partner. The economic crisis in South Korea, while in no way eliminating its huge economic lead over the North, may have had a sobering effect. In some respects, therefore, the environment for renewed North-South dialogue has been set, but it will still take leadership and a significant measure of political courage to get serious dialogue under way and on a productive course.

Territorial Disputes.

Territorial disputes are a watch list issue because they are so widespread and in certain circumstances can capture nationalist sentiments and flare up into important international disputes. In contrast to some recent years, there was very little attention given in 1997 to the region's principal territorial disputes—the Northern Territories issue between Japan and Russia, the Tok Do/Takeshima Island involving South Korea and Japan, the Senkaku/Diaoyu Islands involving Japan and China, the Paracels involving China and Vietnam, and the Spratlys involving Brunei, China, the Philippines, Malaysia, and Vietnam.

Some incidents that occurred were the Chinese emplacement of an oil rig in waters off Hainan claimed by Vietnam in March, the Philippine arrest of Chinese fishermen on Scarborough Reef in May, and some sparring over Tok Do. These incidents were relatively self-contained. The paucity of incidents, however, should not be regarded as a particularly positive sign. Since governments have been politically unable to compromise their claims or have them adjudicated, they continue to fester, waiting for solution by the "next generation." As such, they remain time bombs for Asia's future that may be exploited in the future by governments or nationalistic activist groups for their own purposes.

Weapons Procurement.

Virtually all defense forces in the Asia Pacific region are engaged in military modernization programs, involving a significant upgrading of weapons systems. Our security analysts generally do not regard military modernization as a threat to regional stability, for several reasons. In most cases, modernization is not associated with any clear-cut enemy and thus does not have the character of an arms race. Also in most cases, defense effort measured as a share of gross national product has been declining. Moreover, weapons modernization is associated with declining manpower in virtually all countries. Finally, in many countries defense equipment has become obsolete and new missions, such as better policing of Exclusive Economic Zones, do require new purchases.

The economic crisis caused defense budget cuts and reduced the international purchasing power of many Asian governments, thus dampening the region's appetite for sophisticated new weapons systems. Possible domestic repercussions are increased conflict between defense ministries and other agencies to protect their budgets, and reduced military morale. International repercussions may include controversies with suppliers over existing contracts or well-advanced procurement commitments and efforts to switch sources to cheaper weapons suppliers such as Russia and China as opposed to the United States and Western Europe. The international purchasing power of the defense budgets of countries like China, whose currencies have been least affected by the economic crisis, will increase relatively to those most affected.

Reduced weapons purchases will delay the ability of some of the region's armed forces to assume new missions. In many countries, new equipment purchases have been associated with a growing interest in naval and air capabilities. This suggests that the region's defense planners see modern contingencies as less likely to involve mass numbers of ground forces and more likely to require monitoring, patrolling, and rapid responses by more highly mobile forces. Such contingencies might involve, for example, the detection of illegal fishing, illegal migrants, or terrorists. Even in South Korea, which is the only member country of the ASEAN Regional Forum (ARF) to face large numbers of ground troops across a heavily armed border, there has been a new emphasis on maritime and air capabilities.

Other Regional Issues

Internal Conflict.

The potential for internal turmoil as a result of the financial crisis has been described. In reality, however, thus far internal conflict has remained at a relatively low ebb. Several weaker states within the region have chronic internal security problems, but in no case has the control of the central authorities been seriously threatened. Overall, the region's record in achieving reconciliation in internal conflict during 1997 was mixed. Positive strides were made in Papua New Guinea and in the Philippines. In Papua New Guinea, outside intervention led by New Zealand resulted in a truce between government forces and the separatist Bougainville Revolutionary Army. In the Philippines, government policies of national reconciliation have resulted in agreements over the past two years with the two main Muslim groups in the south and the establishment of an autonomous region. The threat from the New People's Army has been receding, but the government is also seeking negotiations on this front.

The Cambodian situation presented a sharp contrast. In early July, Second Prime Minister Hun Sen launched a military action against First Prime Minister Norodom Ranariddh, claiming that the latter was colluding with the Khmer Rouge. Ranariddh's forces put up little resistance except in defense of one small base along the Thai border. In contrast to the Cambodian conflict in the 1980s, the fighting in 1997 was very limited and outside forces were not tempted to intervene by proxy. Ranariddh's considerable international support moved the struggle to the diplomatic arena with a focus on the July 1998 elections. These elections and the manner in which they are conducted are likely to be a source of intense debate among the Cambodian parties and outsiders interested in Cambodia. The elections will legitimate the winner only if they are seen as being scrupulously fair.

In Indonesia, preelection tensions aggravated by the economic crisis combined to increase internal turmoil. Over the past two years, Indonesia has experienced numerous incidents. Many of these have had an anti-Chinese dimension, fanning this long-standing ethnic tension. So far, however, there is no institutionalized resistance to the central authorities.

New Security Issues.

Aside from the financial crisis, a number of other issues are increasingly cited by strategic specialists as nonconventional security issues. In responses to a questionnaire, they ranked environment high among the "new" security issues. This was given added emphasis in 1997 because of the severe and prolonged haze over Singapore, Malaysia and parts of other neighboring countries as a result of Indonesian forest fires. The haze is primarily regarded as a human security issue affecting personal health and well-being, but it also has the potential to become an international relations problem because of public dissatisfaction in affected countries over the lack of enforcement of regulations in Indonesia. ASEAN is seeking to develop a cooperative framework to handle the issue.

Drug smuggling is also seen as an acute and growing problem by many of the security analysts. Other new security issues cited by security specialists include transnational crime, smuggling, piracy, and illegal migration.

Regional Cooperation.

Governments in the region continue to be supportive of regional cooperation, particularly ASEAN, ARF, and the Asia-Pacific Economic Cooperation (APEC) forum. During 1997, ASEAN expanded its membership from seven to nine with the addition of Laos and Myanmar. The addition of the latter was a matter of some controversy as both the Europeans and North Americans let it be known that they preferred to work with an ASEAN that did not include the Myanmar regime.

Despite this official support, the regional cooperation movement in Asia Pacific may be losing some of its momentum as the initial enthusiasm for new schemes wears off. There is increased questioning of the pay-off from all the time and money spent on meetings. APEC, which has agreed to bring its membership up to 21 with the admission of Peru, Russia, and Vietnam, as well as ASEAN wrestle with the greater complexities of achieving a work program with a more diversified membership. Moreover, the region's financial crisis overshadowed the trade and investment oriented agendas of ASEAN and APEC and called into question the usefulness of these institutions in dealing with the overriding economic concern.

For APEC and the more recently formed ARF, meeting expectations will become much tougher as these institutions move from an early stage of promise (vision) to a new phase of implementation (action). Many of the regional issues, whether achieving new rules of the game in trade or resolving the complex territorial issues of the South China Sea, are inherently difficult, and the creation of multilateral regional entities and dialogue in and of themselves only marginally contributes to their resolution. The growing recognition of this has helped spawn the upsurge in bilateral high-level diplomacy, both independently of and alongside the multilateral institutions, and new interest in small, flexible plurilateral groupings, of which the Four-Party Talks and KEDO are examples. The long-term development of a true Asia Pacific security community, in which there is no expectation of the use of coercion, will be built through many different fora and over a long period of time. The Asia Pacific Security Outlook in its own small way is one such endeavor.