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Asia Pacific Security Outlook 1999

Regional Overview

By most conventional standards, the socioeconomic environment for security in Asia Pacific could hardly be worse. In 1998, for the first time in many decades the gross national product of many countries in the region plunged to large negative figures. Unemployment grew to levels unprecedented in recent years in Hong Kong, Indonesia, Japan, South Korea, and Thailand. However, despite the deepening economic crisis the political systems and international relations of the region have proved remarkably resilient, which bodes well for the future. Nevertheless, the security outlook in the coming years remains uncertain, and multilateral security cooperation, in particular, faces significant challenges.

One broad area of future concern was highlighted by two separate developments during 1998: the successive nuclear tests conducted by India and Pakistan in May, and the launch of a multistage missile by North Korea in late August. These two events served to heighten general consciousness of and to refocus governments' attention on the related long-term issues of the proliferation of weapons of mass destruction and the growing availability of advanced technologies for delivering such weapons.

The Economic Crisis

Asia Pacific Security Outlook 1998 identified the economic crisis as a serious security concern and noted three areas of its politico-security impact: domestic stability, interregional relations, and trans-Pacific relations. The crisis has indeed affected all three of these areas, although to differing degrees. So far, the impact of the crisis has been greater on individual or human security than on traditionally defined national security.

Initially manifest mostly in foreign exchange and currency markets, the crisis and its impact on the real economies of the affected countries deepened in 1998. Interest rate hikes implemented to defend these countries' currencies had the negative effect of dampening business activity. In addition, imports collapsed in many countries, thus affecting the exports of others, and both unemployment and underemployment rose.

So far, however, the domestic political impact of the crisis has been limited, except in Indonesia. In Thailand, the Chavalit government fell as a consequence of the economic difficulties and other factors in late 1997, but the Thai political system proved durable: The successor Chuan Leekpai government has fought off political pressures and pursued its International Monetary Fund (IMF) program. Similarly, in South Korea and the Philippines regular constitutional changes of presidential government took place, and in neither case is the political system threatened by the economic crisis. In Malaysia, the crisis aggravated political tensions between Prime Minister Mahathir bin Mohamad and his former deputy and finance minister, Anwar Ibrahim, each of whom advocated quite different responses to the crisis. Although Mahathir's decision to oust Anwar from office and bring him to trial on corruption and sex-crime charges sent reverberations throughout the Malaysian political system, it has not threatened the system as such. Thus, Indonesia provides the only example of systemic collapse—a special and far-reaching case that will be considered separately below.

In the area of international relations, the economic crisis has intertwined with other influences to place stress on some relationships as well as on regional institutions. In particular, Japan and the United States have both come under criticism from some of the affected countries for not doing enough individually or together to help avert the crisis and bring about recovery. However, despite significant changes in foreign exchange rates, export and import patterns, and unemployment, there had been no significant effect on intraregional or trans-Pacific trade relations by the beginning of 1999. Rather, virtually all the region's economies were vowing to fight protectionism, although the tolerance for rapid liberalization was waning.

Regional institutions, such as the Association of Southeast Asian Nations (ASEAN) and the Asia-Pacific Economic Cooperation (APEC) forum have come under particular criticism for their failure to respond effectively to the crisis. Both these institutions before the crisis' onset were pursuing largely trade liberalization oriented agendas, which were buttressed by expectations of continued growth. As a consequence, both had difficulty in adjusting to a new set of concerns about the financial crisis, and in both considerable disagreement existed as to what should be done. In the ASEAN region, stresses reemerged in relations among the original five ASEAN member countries—Indonesia, Malaysia, the Philippines, Singapore, and Thailand—most noticeably between Malaysia and Singapore, but ASEAN ended the year with a relatively successful leaders' meeting in Hanoi. Conversely, APEC's November ministerial and leaders' meetings were the least productive of all such meetings in the organization's history, for two chief reasons: Member economies could not agree on an Early Sectoral Voluntary Liberalization scheme, and the summit was overshadowed by the controversy over remarks encouraging the Malaysian political opposition made by U.S. Vice President Al Gore at a business forum associated with the meeting.

On the other hand, the crisis clearly underscored the interdependence of the region's economies and the consequent need for regional economic dialogue and cooperation. For these reasons, there seems to be little threat to the existence of either ASEAN or APEC. These economic organizations have traditionally been venues for leaders to deepen their personal acquaintance with each other and for the holding of sidemeetings that cover political and security topics. It is difficult to discern to what degree regional economic cooperation is a cause of, and to what degree a consequence of, good political and security relations. Since the two seem typically to go together, renewed commitment to and confidence in regional economic cooperation are in the security interests of the region.

By the beginning of 1999, there was growing optimism in Asia that the crisis had hit bottom, a view supported by the relative stability of stock and foreign exchange markets as well as by significantly lower interest rates. After a long delay, Japan seemed to be tackling the bad-loan problems in its banking sector in some earnest, although strong deflationary pressures continued to afflict the Japanese economy and spread outward in the region through decreased Japanese imports. For their part, South Korea and Thailand continued to pursue IMF programs. The collapse of domestic spending produced a large balance-of-payments surplus for South Korea, thereby allowing it to begin to repay its IMF debt. In fact, some concern existed in international financial circles that South Korea was recovering so well that the government as a result might become complacent and fail to carry through the more politically difficult reforms. In Malaysia, controversial currency controls did not harm the economy in the short term, although expert opinion about their longer-term impact remains mixed.

Despite the air of cautious optimism, the economic outlook for the region remains sober. Much of the region's economic problems reflect overlending and bad bank debt, and banking crises are notoriously slow in working their way through the economy. Where growth does occur, as seems likely in South Korea and the Philippines, it will be modest. Because much of the job of restructuring still lies ahead, questions about the political ability of governments and leaders to meet the forthcoming challenges remain unanswerable. Also, there is a fear of extraregional shocks that could further weaken the global financial system and stretch the limited remaining resources of the IMF. For all these reasons, the economic stabilization and recovery of East Asia are still weak or nascent and must continue to be closely monitored.


The distinctiveness of the Indonesian situation, so different from that of the rest of the crisis-affected Asia Pacific economies, should be highlighted. The resignation of President Suharto in May 1998 marked more than just a transfer of presidential power, but also a collapse of the New Order system that he had built. This is in stark contrast to the changes of leadership that have occurred within the systems of other affected Asian economies, including the Philippines, South Korea, and Thailand. As well, it differs from the testing going on in Malaysia, which is a challenge to a long-established leader but not to the Malay-dominated political system.

Indonesia thus faces the need to rebuild its political system in addition to its economy. As already demonstrated in Russia, one cannot succeed without the other. B. J. Habibie, who succeeded Suharto as president, initially was widely regarded as a transitional figure who would tend to protect the remnants of the previous system rather than to rebuild anew. However, the new president has forged a partnership with the military leadership and at the same time accommodated rather than resisted pressures to move forward in establishing a more democratic framework for national parliamentary elections in June.

Opinion is mixed concerning the degree of economic desperation in Indonesia. While the end of the El Niño drought has ameliorated some of the effects of the economic crisis in rural areas, the politically important middle and professional classes have been and remain significantly affected by the crisis. Signs of deteriorating order have been visible in the periodic flare-ups of ethnic and religious violence as well as the general increase in banditry and lawlessness. Moreover, Indonesia is likely to face mounting security challenges before and after the June election.

Further instability in Indonesia has serious implications for broader Asia Pacific security and regional relations. Indonesia not only is Southeast Asia's most populous country but also occupies a strategic location astride the main passages between the Indian and Pacific oceans. In addition, it has played a leading role in regional cooperation as a principal architect of ASEAN, while in the APEC context Suharto's influence was key to winning support in 1994 for the goal adopted at the Bogor meeting of developing "free trade and investment in the region" by 2020. Consequently, his departure as president removes from the APEC scene the leader most committed to the realization of this vision. Further turmoil in Indonesia, or weak future leadership, would be a significant detriment to the region as a whole.

Watch List Issues

Aside from the economic crisis/recovery and Indonesian issues, the Asia Pacific Security Outlook analyst team continues to watch four issues dating from the inaugural 1997 edition of the Asia Pacific Security Outlook: the Korean peninsula, large power relations, territorial disputes, and weapons procurement.

The Korean Peninsula

Of these issues, all were seen as improving except the Korean peninsula situation, where a slight majority of the Asia Pacific Security Outlook analysts believed that the security situation had deteriorated during 1998. New South Korean President Kim Dae Jung's "Sunshine Policy" toward North Korea was a stabilizing element in South-North relations, but the lack of a strong and positive North Korean response weakened political support for the new South Korean approach. On the contrary, infiltration incidents, North Korea's missile launch over Japanese territory, and the discovery by American intelligence of an underground facility apparently usable in nuclear weapons production tested Kim's resolve and raised doubts about the ability of the United States and Japan to continue to support the 1994 Framework Agreement.

In 1998, the U.S. Congress became increasingly impatient with appropriating funds for the fuel supplies promised to North Korea under the aforementioned agreement and passed legislation demanding that the U.S. president provide assurances in March and June 1999 of the North's continued adherence to the agreement. On its side, Pyongyang argued that the United States had failed to lift trade and investment sanctions. Given the brinkmanship that has characterized past U.S.-North Korean negotiations, it seemed highly likely that tensions between the two countries would mount. However, it also seemed unlikely that such tensions would lead to military conflict. To head off the threat to the Framework Agreement, the Clinton administration appointed the highly respected former secretary of defense, William Perry, to reassess and make recommendations for U.S. policy. Compromise and cooperation by North Korea also remain essential to surmounting the current difficulties.

Large Power Relations

Fortunately, the containment of tensions on the Korean peninsula has been facilitated by improving relations among the large powers. The era of good large power relations, especially evident at the end of 1997, continued in 1998 with another round of summit meetings. The leaders of China, Japan, Russia, and the United States all met the leaders of the other three countries on at least one bilateral visit during the year. Of these visits, the most significant was U.S. President Bill Clinton's June trip to China, the first visit by a U.S. president since the 1989 Tiananmen Square events. Featuring a public debate between the two leaders on human rights issues, the trip was widely regarded as successful in both countries and the region. Clinton's assurances that the United States would not support Taiwanese independence also helped defuse the Taiwan issue in Sino-American relations. Another factor helping to dampen Taiwan as a Sino-American issue was the resumption of the high-level but unofficial mainland-Taiwan dialogue in October 1998 after a five-year hiatus.

The six-day visit to Japan by Chinese President Jiang Zemin, the first ever by a Chinese head of state to Japan, marked the 20th anniversary of the 1978 treaty of peace and friendship between the two countries. In this instance, the lead-up to the visit was accompanied by hard bargaining over the language of the Japanese statement on Taiwan policy and of Tokyo's expression of apology for past aggression in China, which reflected deeper mutual frustrations over what each side considers to be the other's inflated view of its position. Nevertheless, substantial Japanese assistance to China is in place, and the infrastructure of economic, cultural, and political ties between East Asia's two leading countries continues to deepen.

Despite the impressive series of high-level leadership exchanges, the root sources of tensions among the large powers in the region remain. Aside from the demarcation of the Sino-Russian border, no serious issues among the large powers have truly been resolved. The most complicated and unpredictable bilateral relationship remains that between China and the United States. The strategic analysts associated with the Asia Pacific Security Outlook noted that prevailing American and Chinese views remain fundamentally opposed on such basic issues as the value of the American forward presence in the region, the future of the U.S.-Japan Security Treaty, and the need for theater missile defense systems for South Korea and Japan. Moreover, basic differences in economic and political systems continue to generate tensions. For example, underlying rivalries between Japan and China were evident during Jiang's Japan visit. Finally, while Russia's power has drastically diminished, Russian diplomatic alignment remains an uncertain element in the relations among the large powers of the Asia Pacific region.

Territorial Disputes

Conflicting territorial claims, especially in the sea, remain time bombs that threaten to derail improving international relations in the region. With the exception of Mischief Reef, a part of the Spratly Islands west of the Philippines, little attention was given to territorial issues during 1998. The Mischief Reef issue resurfaced when it was discovered by the Philippines that China had substantially built up its structures on the reef. The Chinese maintain that these structures are for the use of fishermen, while the Philippines argues that they violate a code of conduct under which the two countries had promised to inform each other before undertaking unilateral actions in the area. The Philippines has had little alternative but to protest and to consider whether and how to strengthen its own meager defense forces. There has also been some discussion of joint use of the facilities.

Over the past two years, the Asia Pacific Security Outlook strategic analysts have tended to give a reduced significance to territorial disputes as a potentially disturbing factor in the security outlook for the region. In general, the status of such disputes is regarded as symptomatic of the overall state of relations, rather than a causal factor. However, since many of these disputes involve China, China's posture toward such claims is frequently regarded as a litmus test of China's overall foreign policy toward its neighbors. This gives particular significance to the Spratly Islands, where China has broad claims that overlap with those of four Southeast Asian countries, and to the Senkaku/Diaoyu Islands, where China's claim conflicts with Japanese possession. Moreover, where other stresses are at play in a given relationship, a latent territorial conflict may suddenly escalate. Such disputes are perennial targets of opportunity for nationalist movements or for opposition groups that wish to embarrass current governments. Thus, the failure of governments to finally resolve these disputes means they continue to bedevil Asia Pacific international relations.

Weapons Procurement

As pointed out in previous issues of the Asia Pacific Security Outlook, the strategic analysts associated with the project have generally not regarded the acquisition of weapons by Asia's modernizing militaries as a significant source of regional tension. This is because most such acquisitions appeared to reflect plausible defense missions, such as those associated with patrolling large maritime Exclusive Economic Zones, and did not involve competitive purchases fueled by perceptions of specific external threats.

As the individual country chapters indicate, since the onset of the Asian economic crisis a number of governments, particularly in Southeast Asia, have had to scale back their defense modernization programs. Exercises and training have also suffered. These cuts may come at the expense of the effectiveness of Asia's military forces in carrying out missions associated with the maintenance of law and order and the control of illegal fishing or smuggling. This practical concern is probably of greater contemporary significance than is the concern about possible arms races in the region.

In addition to these, there are other concerns associated with the impact of the economic crisis on weapons procurement programs. For example, the region's poorer countries will not be able to finance the technology necessary to keep abreast of the Revolution in Military Affairs, and thus there may be increased perceptions of a growing balance-of-power disequilibrium. Further, widening disparities in technology can also create problems in developing and sustaining interoperability or engaging in practical cooperation at a time when many militaries are seeking to intensify engagement with their counterparts.

The competitive nuclear testing programs in South Asia, combined with renewed doubts as to whether North Korea's nuclear weapons program has truly ended, have raised the level of concern in the region over the related longer-term issues of the proliferation of weapons of mass destruction and technological advances in delivery systems for them. Given that several Asian states are capable of producing nuclear weapons but have acceded to the strictures of the nonproliferation regime, a weakening or collapse of this regime could have serious consequences, especially in Northeast Asia. The key task for the region is to restore confidence that North Korea is abiding by its pledges. The South Asian nuclear issue poses a global challenge—to bring the now explicitly acknowledged nuclear states in South Asia into the nonproliferation, comprehensive test ban, and missile control regimes.