The 14th of January 2015 marked thirty years of Hun Sen's rule as Cambodian Prime Minister, making him one of the longest-serving leaders in the world, and the longest-serving leader in Southeast Asia. Seven days earlier, 7 January 2015 marked thirty-six years since the fall of the Khmer Rouge. With a rule this long, Hun Sen and his ruling Cambodian People's Party (CPP), whose legitimacy is rooted in the defeat and demise of the Khmer Rouge, faces a new set of longterm political challenges. The majority of the Cambodian population that the sixty-three-year-old authoritarian leader is overseeing is no longer the generation of traumatized Khmer Rouge genocide survivors, but a much more demanding population, of which at least sixty per cent are half his age or less. The July 2013 elections was not only a turning point in Cambodia's political history, but, more importantly, it captured the “coming of age” of a new generation of Cambodians — some already in their thirties — that is gradually reshaping Cambodia's political, economic and social dynamics, as well as the nation's longterm democratization prospects.

The year 2015 gave witness to the continuing trend of a generational shift moving towards a critical mass. The Cambodia of 2015 was different from the Cambodia of 2005, and vastly different from the Cambodia Hun Sen knew when he first assumed power three decades ago. In addition, as Cambodia's own “Millennial” generation — or perhaps more correctly termed “post–Khmer Rouge baby-boomers” — are coming of age politically during the information revolution era, they are transforming popular expectations. Compared to their parents they are more educated and connected, and increasingly form the core of engaged citizens demanding democratic space and social accountability, rule of law, and human rights. Arguably, they pose the only real long-term challenge to the country's most powerful institution, the CPP, and its established system of patronage and a party structure that has changed little over the past three decades.

The opposition Cambodia National Rescue Party (CNRP) has been capitalizing on the momentum of this demographic change and accompanying discontent. But following a year-long deadlock that saw large street protests and parliamentary boycotts, the CNRP reached a landmark agreement with the CPP in July 2014.

The year preceding a presidential election in the Philippines is a year of political caution where aspirants try to tread carefully over what is one of the most unpredictable political landscapes in the region. The same can be said of the current administration under the leadership of Simeon Benigno C. Aquino III, who rose to prominence and eventually won the presidency after his mother's death.

President “P-Noy” Aquino began his political career as the representative of the 2nd Congressional District of Tarlac, from where his family hails, and which he initially won in 1998. He eventually won a Senate seat in 2007 with seemingly no further political ambitions, until his mother's death in August 2009. This galvanized the support for Senator Aquino as evidenced by succeeding polls and an eventual victory by around forty-two per cent of the vote in the 2010 presidential election.

It can be surmised that in his last year as President, the administration rhetoric of tuwid na daan (straight path) is being watched by supporters and critics alike, as a legacy beyond that which his family name has brought him. There have been definite gains in political, economic and social areas, which may, at least in part, be attributed to reforms by the Aquino administration:

1. • The country has improved its standing in the Corruption Perception Index, from a 2012 score of 34 to a 2014 score of 38;

2. • The improvement in sovereign credit ratings (most recently from the Japan Credit Rating Agency [JCR] from BBB to BBB+);

3. • The passage of key legislation such as Republic Act 10354, “An Act Providing for National Policy on Responsible Parenthood and Reproductive Health”; and

4. • Increased domestic and foreign tourism.

The third quarter gross domestic product results show that the Philippines grew at six per cent, the third strongest in the region. While it is likely that the country will miss its yearly growth target, the head of the National Economic Development Authority, Arsenio M. Balisacan, notes that the country has not yet met its full economic potential.

The country's hosting of the 2015 APEC Summit also contributed to its positive international image as the red carpet was rolled out for heads of state, including United States President Barack Obama.

Vietnam suffered two major domestic financial crises on either side of the global economic crisis of 2008. This extended period of turbulence destabilized the economic model that had been in place for most of the doi moi or “renovation” period since the late 1980s. The model had consisted of export-oriented and labour intensive “vent for surplus” sectors welded to a state-dominated economy producing goods and services for the domestic market. The former generated employment and export earnings, while the latter distributed economic rents throughout Vietnam's highly commercialized and fragmented state apparatus.

By the early 2000s, rapid credit growth was fuelling speculative investments in equities, property and other risky ventures by domestic businesses and households, both in the state and non-state sectors. This process gradually undermined bank, corporate and household balance sheets. By 2011 the decay could no longer be concealed, and major scandals broke in the state economic groups, notably in the shipbuilder Vinashin and the state shipping company Vinalines. The export sector continued to grow, led by surging exports of mobile phones and other electronic goods as global producers sought to diversify production bases away from China, where wages and other costs were rising quickly. However, domestic investment and consumption stagnated as businesses and households struggled under the weight of a heavy debt burden, frozen asset markets and tight credit conditions. Moderate rates of growth have been sustained but they remain heavily dependent on foreign direct investment and external demand. The challenge facing the government is to devise a new growth model that builds on the country's export success and stimulates investment in domestic supplier and downstream industries, while at the same time opening domestic markets to greater competition.

This chapter sets out to do three things. First, it briefly describes the growth model that evolved during the doi moi period and remained intact until the crises of 2008–11 played themselves out. One of the most interesting features of the model is the concentration of domestic commercial activity within the state, and the resulting absence of large-scale private firms in the dynamic export sectors or the import-substituting sectors. Second, we revisit the crises of 2008 and 2010 to emphasize the central importance of these events to the breakdown of the old model.

“Time for Change”; “For Real Change Let's Vote for NLD”

On 8 November 2015, in Myanmar's sixth multiparty general election (hereafter GE2015) since independence in 1948, voters’ desire for “change” swept away the conservative forces associated with more than five decades of military dominance in the politics of Myanmar. That simple catchy C-word, reminiscent of Barak Obama's U.S. presidential campaign battle cry in 2008, proved more effective than the “goodies” delivered during the five years of USDP (Union Solidarity and Development Party) rule under President U Thein Sein, as well as the lastminute deluge of amenities, goods and services brought in by powerful USDP candidates to their designated constituencies to garner votes from the weary public. The National League for Democracy (NLD), led by Daw Aung San Suu Kyi, the charismatic daughter of Myanmar's martyred independence hero, “Bogyoke” (general) Aung San, clinched supermajorities in both houses of parliament, stunning pundits, competitors, detractors, supporters and the NLD itself, not only in Myanmar but also in the international community. Thus, GE2015 appeared to herald the dawn of a new era in Myanmar politics, whose troubled experiment in parliamentary democracy was truncated by the military coup of 2 March 1962. However, both powerful agencies and rigid structures stand in the way of “real change” as envisaged by the NLD leadership and aspired to by those who voted in the popular party led by their beloved hero's daughter.

The Bumpy Road to GE2015

One could say that the re-entry of the NLD, especially its chairperson Aung San Suu Kyi, into the mainstream political playground through the by-elections in April 2012 set the stage for the race to win GE2015. People took notice of the NLD's comeback when it won forty-three of the forty-fives seats it then contested. It allowed the party and its leader to play a high-profile role in and out of the parliamentary system and capture the imagination of a public apathetic to electoral politics since the huge setback when the junta ignored the results of the 1990 general election.

Meanwhile, the government of President U Thein Sein, formed in March 2011, carried out significant political and economic reforms as well as administrative restructuring and attempted to achieve performance legitimacy and overcome its image as a quasi-civilian government comprising many retired military officers and serving generals.

As the Barack Obama administration moved towards its last year in office, the United States’ relations with ASEAN were ostensibly sound. However, Washington's future ties with the region remained contingent on larger forces of global change that could undermine such relationships. Most regional leaders quietly welcomed, for example, the American naval destroyer USS Lassen's passage within the twelve nautical mile territorial limit claimed by China at Subi Reef near the Spratly Islands during late October 2015, as a symbolic demonstration of the United States’ determination to maintain freedom of navigation (FON) in the South China Sea. If China continues to rise, the United States will invariably be viewed by ASEAN policymakers as an indispensable counterweight for maintaining regional stability in Asia. American policy planners, however, are facing increasingly daunting challenges in the Middle East, in Europe and from international terrorism which is increasingly threatening to envelop their homeland. Given the growing intensity of such challenges, matching resources with the capabilities required to implement and sustain a viable U.S. geopolitical footprint in Asia will become increasingly formidable.

The case of the U.S. “pivot” or “rebalancing” strategy is illustrative. This policy approach was touted by key officials serving during President Obama's first term in office (2009–12) as “a sustained and multi-dimensional strategy” rather than as “simply a shifting of [U.S.] military resources” to the Asia-Pacific region. It was represented as a posture with widely diverse diplomatic, economic and cultural designs underpinning Washington's regional engagement. However, one of its key instigators, Kurt Campbell (Obama's initial Assistant Secretary of State for East Asian and Pacific Affairs) has since lamented that the military aspects of this strategy have been exaggerated relative to its broader objectives, including the solidification of the international norms and law upon which Asia- Pacific order-building should be predicated, strengthening regional prosperity and promoting democratic values.

A subsequent policy correction in this regard has indeed been realized, but largely by default. Confronted with intensifying budgetary constraints affecting all U.S. government expenditures, the U.S. Department of Defense has recently served notice in key documents forwarded to the American Congress that the FY2016 U.S. defence expenditures would be predicated on a “global” rather than an “Asian basis” due to intensifying global strategic concerns. How the United States has adjusted its rebalancing policy as it applies to Southeast Asia during the period 2014–15 is initially discussed.

The Philippines has been tagged repeatedly as the “the sick man of Asia” for its lacklustre economic performance. In turn, this poor showing can be attributed to its long history of institutional failure which led to a pandemic system of corruption. Hence, the recent determined attempts at improving governance procedures and institutions as a means of reducing and eliminating corruption have caught the attention of Asia and the rest of the world.

The administration of President Benigno S. Aquino III was elected on the basis of weeding out corruption. Its slogan of Walang Corrupt, Walang Mahirap (No Corruption, No Poverty) has permeated all levels of the government and resulted in changes beyond those that were initially expected. Based on Transparency International's Corruption Perceptions Index (CPI) for 2014, the Philippines has been perceived as becoming less corrupt over recent years. The Philippines was ranked 85th out of 175 countries by the Germany-based organization, higher than the rank of 94th in 2013, and 105th in 2012. Although the Philippines still scored below 50 in the index, its CPI score of 38 for 2014 is a “marked improvement” from its score of 34 in 2012 and 36 in 2013, according to Transparency International.

Tagged as Matuwid na Daan (the Straight Path), these reforms seemingly have translated into economic gains, with real gross domestic product (GDP) growth rates averaging 6.12 per cent for the past three-and-a-half years, capped by an unprecedented economic growth rate of 7.2 per cent at the end of 2013. Despite the slowing down in 2014 to 6.1 per cent due to debilitating typhoons resulting in a stagnant agricultural sector and limited government disbursements, the economy remains robust. While the current election period has attracted a diverse number of candidates, all of them, including the main opposition party, have vowed to continue the reforms of the Aquino administration.

Moreover, the various credit rating upgrades received by the country were measurable indications of its accomplishments in governance, especially in fiscal discipline and monetary management. Government revenue's share to GDP was 13.3 per cent in 2013, up from 12.1 per cent in 2010.

With this development, can we say that the country is on the verge of joining the ranks of other Southeast Asian nations whose growth have preceded it? Unfortunately, the answer is negative.

In his 2015 New Year message to the nation, Malaysian Prime Minister Najib Razak called 2014 the most challenging year of his career, with the twin airline tragedies — the disappearance of MH370 in March and the downing of MH17 in July in Ukraine — and the worst floods to hit the country in decades, which displaced more than 200,000 people, dampening the country's economic outlook.

But 2015 proved that Najib may have spoken too soon. At home, Malaysia and its embattled Prime Minister spent most of 2015 muddling through a daunting set of political, economic and social challenges, all made worse by the long shadow of one of the country's biggest scandals directly implicating Najib himself. And though 2015 was an important year for Malaysia's regional and international diplomacy, with the country's chairmanship of ASEAN and a non-permanent seat on the United Nations Security Council (UNSC), the spillover from its domestic politics along with a series of crises put a dent on some otherwise notable achievements.

Political Turmoil and Turbulence

For much of the year, Malaysia was consumed by allegations that Najib had mismanaged funds linked to debt-ridden state investment fund 1Malaysia Development Berhad (1MDB). 1MDB had long been under assault, weighed down by 42 billion ringgit ($11.4 billion) in debt. But the scandal truly rocked the country following a 3 July report by the Wall Street Journalwhich disclosed that investigators had found that nearly $700 million from entities linked to 1MDB was deposited into Najib's private bank account. Najib denied using government funds for personal gain. But revelations — including the fact that the money had come from an unspecified Middle East donor prior to Malaysia's 2013 general elections — only raised more questions in what some began calling the biggest scandal in Malaysia's history.

Some expected the 1MDB scandal to be the death knell of Najib, especially since his approval ratings in February had already plunged to their lowest levels since he assumed office in 2009. Indeed, there was initial speculation about his removal either by opponents within his party, the United Malays National Organization (UMNO), or through a no-confidence vote tabled in parliament.

Yet Najib turned out to be far more ruthless and resilient than his opponents anticipated.

Political and security developments during 2015 posed major challenges to the Association of South East Asian Nations’ (ASEAN) promotion of regional autonomy and community building. The vexed issue of maritime disputes in the South China Sea took a new turn with China's accelerated construction of artificial islands, Japan's stepped-up support for claimant states, and the initiation of freedom of navigation operational patrols (FONOP) by a U.S. warship and aircraft. These three developments illustrated once again the difficulties confronting ASEAN in maintaining Southeast Asia's autonomy in the face of intensified major power rivalry. During the year ASEAN continued to press China for an expeditious conclusion of a Code of Conduct (COC) in the South China Sea.

During 2015 ASEAN encountered five significant challenges to its efforts at community building: the Rohingya refugee crisis; the flare-up of border tensions between Cambodia and Vietnam; competing organizational forms of regional economic integration; domestic political transitions in Thailand, Cambodia and Myanmar; and the resurgence of international terrorism.

South China Sea Dispute

China's Artificial Islands

In 2015 China accelerated construction of infrastructure on seven artificial islands in the Spratly archipelago — Fiery Cross Reef, Subi Reef, Mischief Reef, South Johnston Reef, Gaven Reef, Hughes Reef and Cuarteron Reef. Between February and September China completed construction of a three-kilometre-long runway on Fiery Cross. This became operational in January 2016 when China conducted three test flights by civilian passenger aircraft. In mid-year China began building a second airstrip on Subi, while in September China commenced preparatory work for a third runway on Mischief Reef. When completed, the total length of China's airfields (9,000 metres) will be more than twice as long as the four airstrips maintained by Malaysia (1,368 m), Taiwan (1,195 m), the Philippines (1,000 m) and Vietnam (500 m). With the exception of Vietnam, all the runways in the South China Sea will be able to accommodate jet fighters; but only China will be able to operate bombers.

During 2015, U.S. spokespersons repeatedly called on all claimants to halt land reclamation and new construction and refrain from militarizing the features that they occupied. For example, on 18 November President Barack Obama told a press conference in Manila, after meeting his Philippine counterpart Benigno Aquino, “We agreed on the need for bold steps to lower tensions including pledging to halt further reclamation, new construction and militarization of disputed areas in the South China Sea.”

Infrastructure is vital for development. Today, the role of physical infrastructure has taken centre stage as a country's international competitiveness is determined by the state of development of its infrastructure. Estache and Fay find that, over the past twenty-five years, there is abundant empirical evidence showing the impact of infrastructure on economic growth, especially at lower levels of development. Investment in infrastructure is perceived as key to improving the efficiency and productivity of an economy, thus supporting the country's economic growth while reducing income inequality and poverty.

The current state of the infrastructure in Indonesia is better than it was after the economy was hit hard by the 1997 Asian financial crisis. However, Indonesia is still struggling to increase investment in infrastructure to a level sufficient to support the high growth rates it saw in the early 1990s. In the thirty years prior to the crisis, infrastructure played a key role in driving growth and poverty reduction in the country. After the 1997 crisis the Indonesian government experienced financial difficulty that forced it to reduce development spending, especially for infrastructure. When Susilo Bambang Yudhoyono (SBY) became President in 2004, the state of Indonesia's infrastructure ranked among the lowest in the region. For several years the lack of investment in infrastructure has been blamed for deterring investors, hence dragging Indonesia's economic growth down from its potential. According to World Bank estimates, Indonesia's dilapidated infrastructure has contributed to a 1 per cent loss of economic growth each year since 2004.

During his two-term presidency (2004–14), to his credit, SBY managed to restore and maintain political and economic stability in Indonesia's complex democratic environment. Fiscal consolidation was achieved during his first term (2004–9). This set the necessary foundation for Indonesia to move beyond its infrastructure impasse. During SBY's first term, Indonesia hosted several infrastructure summits to attract investors, both foreign and domestic. It was during this time that the country slowly opened up its infrastructure sectors to private sector participation, mainly in power, toll roads, railways and seaports. Several regulations were enacted and institutions established to promote public private partnerships (PPPs). Then, in 2011, the SBY administration unveiled the Master Plan for Acceleration and Expansion of Economic Development of Indonesia (abbreviated as MP3EI).

Amid worldwide salutes and suspicion, China's international strategy took full shape in 2015. While many observers find increasing opportunities in China's multiple initiatives to enhance regional and global development as well as economic cooperation, others see an ever more assertive China, projecting might with its growing wealth. Especially for Southeast Asian nations, the most susceptible to China's moves due to their proximity to and close economic ties with China, the many new Chinese initiatives have brought both hope and challenges. Now that three years have passed since President Xi Jinping took office and the basic framework of China's international strategy has been established, it is time to examine the new features of China's international endeavours and draw salient implications for the future trends of its political, security and economic relations with the world, and in particular with its closest neighbour, ASEAN.

From the author's perspective, despite its widely perceived image as a revisionist, hegemony-seeking power, China has maintained its course of peaceful rise, and its new international strategy features more continuity than change. Nevertheless, with the evolving geopolitical environment of the world and bigger stakes in regional stability and global economic well-being, China has made many adjustments to its international strategy under the new leadership. If effectively implemented and well understood by other nations, this strategy will not only help achieve the grand “Chinese Dream”, but also boost global peace and development as well as regional stability and integration.

Old Ambition, New Approach: Five Changes to China's International Strategy

The peaceful and inward-focused nature of China's rise was reaffirmed when President Xi put forward China's strategic goal to achieve the “Chinese Dream”, a new name for the century-long ambition for “the great rejuvenation of the Chinese nation”, on 29 November 2012, only two weeks after he was elected as General Secretary of the Communist Party of China (CPC). Despite occasional headstrong behaviour since then, China has in general demonstrated a peaceful and constructive stance in the international arena, and domestic reform and development have remained its first and foremost strategic targets.

It is my pleasure to present the forty-third edition of Southeast Asian Affairs. The information and analysis in this annual review will be useful for all those interested in developments in Southeast Asia.

The year 2015 saw global economic headwinds grow stronger in Southeast Asia. Growth in Japan and Europe remained subdued, while in China growth weakened and market volatility increased. These external factors were the main reasons for the lower growth rates, manufacturing exports, stock market capitalizations, and currency values in Southeast Asia. These headwinds will likely continue throughout 2016.

On the security front, the problems in the South China Sea worsened, particularly between the United States and China. China, the United States, Japan and India all increased their active interest in the South China Sea. The United States and China increased their pressure on Southeast Asian states and ASEAN to support their positions on the South China Sea.

Politics in 2015 reflected the region's diversity. The election in Singapore saw a strong surge of support for the ruling People's Action Party. Myanmar's first free election in many years saw a definitive defeat for the ruling Union Solidarity and Development Party. In Indonesia, the Jokowi administration struggled to translate its election victory into effective rule, while the Philippines, Vietnam and Laos geared up for leadership changes in 2016. The long-standing political regimes in Cambodia and Malaysia faced greater popular pressure for change, while Thailand moved no closer to a return to democracy.

I would like to thank the authors, the editors as well as others who have helped to make this publication possible. The chapters in the volume contain a wide variety of views and perspectives. They do not necessarily reflect the views of the Institute. The authors alone are responsible for the facts and opinions presented in their contributions.

For Brunei Darussalam, 2015 was primarily about the dilemma of maintaining domestic stability in the face of significant regional and global instability in areas of particular vulnerability for Southeast Asia's smallest country. Plummeting global energy prices saw the country's once extremely large current account surplus reverse into a large deficit. At the same time, as the smallest and weakest claimant in the South China Sea, Brunei has the fewest means to counter the effects of growing Chinese assertiveness, U.S.–China rivalry, and ASEAN ineffectiveness in relation to these disputed waters that lap on to the shores of the Sultanate. Aided by significant long-standing financial, political and diplomatic reserves, Brunei Darussalam was able to maintain an impressive level of social, political and diplomatic stability in these challenging times. On the economic and diplomatic fronts, Bandar Seri Begawan responded by enhancing existing relations and assets and seeking greater diversification. On the social and political fronts, the response was one of greater conservatism and centralization. As Brunei Darussalam's economic problems are significant and structural, the responses will have to pass the test of time for the country to overcome them.

More than Headwinds

Even a cursory glance at Table 1 shows how dramatically the Brunei economy was affected by falling energy prices. And yet, the growth estimates for 2015 are based on inflated price assumptions for both oil and liquefied natural gas, so the reality will likely be even worse. Likewise, current market movements suggest the IMF price assumptions going forward err on the side of optimism.

The Sultan, His Majesty Haji Hassanal Bolkiah, is well aware that the country's hydrocarbon resources will eventually expire, possibly as early as 2025, and has tried to extend their life in recent years by capping production. The volume of oil production reportedly is now a full 40 per cent less than in 2006. In 2015 the scheduled and unscheduled maintenance of some of the most important energy projects has further hit production. However, the short-term costs of the policy have been exacerbated by the global collapse in the value of hydrocarbons with the price of crude oil having fallen from above US$100 in mid-2014 to less than US$30 per barrel by January 2016 and the value of natural gas per million Btu (British Thermal Unit) having fallen from over US$6 to nearly US$2 during the same period.

For Indonesia, 2015 has been a year of tremendous fluctuations on the political front as President Joko Widodo (Jokowi) has been seeking to find his political feet, as well as on the economic front, as the country experienced the worst currency devaluation since 1998, and a dramatic turnaround in economic policy in the second half of the year. Foreign policy was not without its own drama, featuring among other things the drawn out and sensationalized execution of eight foreign drug offenders, and a U.S. state visit. Finally, in 2015 Indonesia was responsible for the worst “haze” in eighteen years, choking the region for several months and causing approximately US$34 billion in damage.

This chapter will review the highlights of the year in Indonesia, focusing on four areas — political highlights, institutional reform, the economy, and foreign policy. It will conclude with a brief section on Jokowi's leadership style and the country's future outlook.

Political Highlights: Jokowi's First-Year Performance

The biggest political story of the year by far is the story of Joko Widodo's first year as President of Indonesia. Elected in October 2014, he came into the presidency riding a tide of euphoria and expectation for reform somewhat reminiscent of the delirium that greeted President Obama in the United States in 2009. And, also similarly, these high expectations were quickly dashed, as political manoeuvres in the first months of his presidency meant that he faced an opposition-controlled House of Representatives (DPR) and a Cabinet reflecting the political strength of his “patron”, PDI-P head Megawati Soekarnoputri, his Vice President Jusuf Kalla, and National Democrats (NasDem) party chair Surya Paloh. During the past year Jokowi has had to manoeuvre politically between the interests of these party allies (who did not always act like allies) and multiple teams of advisors who had been with him since his gubernatorial days.

In early January 2015, only three months after becoming President, Jokowi took the bold move of abolishing fuel subsidies — an act which no president before him had been able to do. This gave the administration an additional 200 trillion rupiah (roughly US$16 billion) to spend on infrastructure and service delivery.