The year 2002 opened with expectations of economic rebound in Southeast Asia after a year of generally sluggish growth but by the second quarter it was becoming clear that the three traditional engines that drove regional economic growth were spluttering — the U.S. economy did not sustain the hoped-for growth; Japan continued to be mired in recession; and Europe was experiencing economic slowdown. The political and economic dynamics were further complicated by the spectre of international terrorism, which acquired strong regional resonance after the devastating Bali bombings in October. The Bali bombings refocussed attention on the connections between regional and global networks of terror. While not all regional governments necessarily shared the same domestic concern with Muslim militancy or radicalism, the challenge of resurgent political Islam and the intensified religiosity among Muslim populations in the region could not be dismissed.

Fortuitously the external security environment of Southeast Asia remained relatively stable during this time. The new global challenge posed by terrorism resulted in a positive shift in relations among the major external powers — most notably between the United States and China. The threat of international terrorism became a point of overlapping though not necessarily congruent major power security interests. It also tempered somewhat, especially after the Bali bombings, regional differences towards security co-operation with the United States. But differences in domestic political circumstances did complicate attempts at a coherent regional response. If 2002 began with regional anticipation of the political fallout of the war against international terrorism, it ended with nervous tension over the imminence of war in Iraq.

The year also saw ASEAN continuing to address the sense of drift. Persisting economic strains, the pressure of domestic politics, and a new intramural competitiveness also had their negative effects on certain bilateral relations. Malaysia–Singapore differences centred on the pricing of Malaysian water supplied to Singapore and rival claims over Pedra Branca/Pulau Batu Putih were among the irritants that resurfaced during the year.