When President Park Chung Hee took power through a military coup in 1961, he was said to have enshrined economic growth near the top of the regimes value hierarchy; economics took priority over politics.

A. Introduction

During the eighteen months of its rule from May 1958 to January 1960, the caretaker government of the military gained some experience in the administration of the country. It established law and order, cleaned up the cities by removing squatters and relocating them in new towns, abandoned unnecessary state projects, and encouraged the creation of joint ventures between the government and foreign firms. Prior to that, it had created the Defence Services Institute, and gradually expanded its activities into all economic fields of the state, from international shipping to internal trade and production. In fact, it fashioned a sort of self-reliant enclave economy of its own within the larger economy of the country. All of this may have given them confidence that they could have greater success than the squabbling politicians could in dealing with the longer-term problems of development. As events were to prove most sadly, they could not be more wrong.

Two reasons were given for the second military takeover. They were, one, that the Union of Myanmar was in danger of disintegrating; and two, that the political regime of the civilian government of U Nu has strayed away from the socialist path laid down by the nation's founder, General Aung San.

Immediately following the coup in 1962, three major documents were produced: The Burmese Way to Socialism, 30 April 1962; The Constitution of the Burma Socialist Programme Party, 4 July 1962; and The System of Correlation of Man and His Environment, 17 January 1963. The main thrusts of these documents and of the government's policies were “Burmanization”, centrally planned socialist system, and an inward-looking strategy of self-reliance. Faithfully adhering to that policy mix, the government proceeded with great haste to lay the foundations for transition to a self-reliant socialist economy of Myanmar.

Introduction

The Asian financial crisis can be said to have been the fruit of East Asia's own success as late-comer economies. Led by the NIEs in the late eighties and early nineties, the East Asian firmament was studded by high-flying economies, with the possible exception of the Philippines that caught the attention of the world for having defied the Kuznets ‘law’ of growth. They grew but without passing through a phase of social inequity. Their stunning growth performance easily became fuel to capital flows that accelerated with every good news. With growth came naturally the self-confidence that made these countries bring down their defenses, albeit prematurely, that previously guarded their markets of both goods and capital. It was generally a period of euphoria where daily trading in world capital markets reached $1.26 trillion in 1995, or seventy times the volume of world trade, considering that the ratio was only 10:1 (at a daily trading of $80 billion) only a decadeand-a-half earlier (Rana and Yap 2001). In such a heady environment, bad news eventually snowballed into a crisis of confidence and quite quickly led into the contagion that made investors run over one other to beat an exit. Between 1996 and 1998, $95.6 billion of private capital flows were reversed for the five crisis-affected countries, or equal to 10% of their GDP.

The Philippines was some kind of an outlier in this miracle story of East Asian growth. Considered the ‘basket case’ or the ‘sick man’ of Asia, the eighties were a lost decade for her, still struggling as she was with the political and economic instability that were the aftermath of the Marcos dictatorship. But now by hindsight, it is commonly judged it was precisely its historically weak economic performance relative to its more successful neighbours that made her appear less vulnerable to the international ‘hot money flows’ that plagued the countries in the region. Moreover, the country's relatively repressed and inefficient financial systems had earlier led to crises in the '70s and ' 80s, and forced the Philippine government to undertake a number of important financial sector reforms in the’ 90s (to be discussed in Section 2, following).

Introduction

The fact that Japan has significantly contributed to the industrialization of Thailand can never be overstated. To begin with, Japan is one of the most important trading partners of Thailand. The value of export from Thailand to Japan in 2002 amounted to $10 billion, or about 14.5% of Thailand's total export. The value of import from Japan to Thailand in the same year amounted to $14.8 billion, or about 23% of Thailand's total import. In terms of investment, foreign direct investment (FDI) inflow from Japan to Thailand amounted to $620 million in 2002, second only to the flow from ASEAN.

In addition to the role of the private sector, the Japanese government also plays an important role in promoting industrialization in Thailand through financial support in the forms of loans and grants as well as technical support. The assistance has contributed to both the hardware and the software sides of the Thai industries. The former includes infrastructure development while the latter includes technology transfer, laws and regulation development and institutional building. During the economic crisis, the Japanese government and private sectors also contributed in alleviating the impact of the crisis. In particular, the Japanese government had initiated a number of projects that aimed at facilitating the recovery of Thailand and other ASEAN countries, most notably the New Miyazawa Initiative. Japanese multinational companies (MNCs) injected capital into their Thai affiliates in the form of loans or equity to retain the level of employment in these firms. Organizations in the third sectors, e.g., the Ja panese Overseas Development Corporation (JODC) and Association of Overseas Technical Scholarship (AOTS), also played important roles in developing human resources in Thailand after the crisis. The assistance and co-operation were highly recognized by the Thai government and private sectors. Indeed, the economic crisis has further strengthened the Japanese–Thai relations.

In future, Thailand and Japan need to deepen their co-operation in areas of mutual benefit. Examples of such areas include human resource development and SME support. The goal of this chapter is to assess the role of Japan in the process of industrializing Thailand in the past decades and discuss some areas for future co-operation

Structural Shift in Global and Regional Environment

Singapore's remarkable economic transformation in the last four decades has been, to a large extent, due to its capacity to leverage on external sources and external markets to achieve economic output far beyond its domestic production possibility curve. Such sterling policy performance was the result of far-sighted policy makers in managing and optimizing emerging favourable external environments. Specifically, the Government provided world-class infrastructure, transparent and effective institutions and sound macroeconomic policy framework to create economic value for the global marketplace. As a result, Singapore has been one of the favourite investment destinations for multinational companies in this part of the world.

Lately, there have been several major events occurring in the global and regional environments that have serious long-term implications to Singapore's economic viability and performance. Firstly, the Asian financial and economic crisis in 1997 has devastated the financial and real sectors of many Southeast Asian economies that serve as Singapore's hinterland for resources and market. The quick economic recovery in ASEAN and in Singapore in 2000 was primarily due to export expansion from low export bases and stimulus from highly devalued regional currencies. It would take many years for the ASEAN economies to fully recover from the debilitating financial sector mismanagement and non-performing loans in the financial and banking sector. As a regional hub, Singapore cannot prosper as long as the regional hinterland remains economically weak, and socially and politically instable. Singapore needs a prosperous and dynamic Southeast Asia to complement it in an environment of competitive regional clustering.

The second major external change is the accelerating market liberalization and borderless nature of the global economy. The global marketplace has become strikingly more competitive and more complex as a result of this relentless process of global production networking. The new global economic structure, widely known as the New Economy, is the product of three major elements, namely, information technology, changes in government policy and corporate restructuring. Information technology is an important force shaping the contours of the global economy and contributing to the shortening of the product cycle and changes in the comparative and competitive advantage of trading countries. The shift to information technology as the basis for industrial production is forcing a change in industrial organizations.

Introduction

ASEAN and Japan have played a critical, if not a pivotal, role in the establishment of regional co-operation processes in the Asia Pacific region. At the inter-governmental level the region has seen the establishment of APEC (Asia Pacific Economic Co-operation) to promote economic cooperation and the ARF (ASEAN Regional Forum) as a forum for co-operation in the political and security field to strengthen confidence building measures (CBMs). At the non-governmental level, two important “track two” processes have also emerged in the region, beginning with PECC (Pacific Economic Co-operation Council) since the early 1980s and later CSCAP (Council for Security Co-operation in the Asia Pacific). The overarching objective of these processes is to develop an Asia Pacific community.

Will ASEAN and Japan again play an important role in the creation of an East Asian community? ASEAN has made the first step toward this end by initiating the ASEAN Plus Three (APT) process, involving the ten ASEAN countries, China, Japan and South Korea. A vision for an East Asian community has been articulated by the East Asian Vision Group (EAVG) in its report, “Towards an East Asian Community”, submitted to the APT Leaders at their Fifth Summit in Brunei Darussalam in November 2001. The vision is of an East Asia that moves “from a region of nations to a bona fide regional community with shared challenges, common aspirations, and a parallel destiny”. Furthermore, the report also stated that “[t]he economic field, including trade, investment, and finance, is expected to serve as the catalyst in the comprehensive community-building process”.

In the field of economic co-operation, the vision is that of a progressive integration of the East Asian economy, ultimately leading to an East Asian economic community. Economic integration is to be pursued through the liberalization of trade and investment, development and technological co-operation, and information technology development.

In trade, it recommended the formation of an East Asia Free Trade Area (EAFTA), and the liberalization of trade should be well ahead of the Bogor Goal set by APEC. In investment, it proposed the establishment of an East Asian Investment Area (EAIA) by expanding the Framework Agreement on ASEAN Investment Area (AIA) to cover East Asia as a whole. In the area of finance, the recommendation toward greater financial integration was to adopt a staged, two-track approach, namely for the establishment of a self-help arrangement.

Introduction

During the last three decades leading up to mid-1990s, ASEAN countries have in general recorded sustained economic growth while undergoing fundamental changes in terms of per capita income, economic structure, foreign trade composition and foreign capital participation. They have also made an enormous progress in the social dimensions of development as expressed in longevity, literacy, school enrolment and poverty reduction. Political reforms have also followed these economic and social achievements, enabling in a varying degree among its member countries to move further to multi-party system, people's participation in national and community decision-making processes and smooth changes in political leadership.

Two extraordinary events have taken place since the mid-1990s. One was the enlargement of the ASEAN-6 consisting of Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand to the ASEAN-10, bringing into the family Cambodia, Laos PDR, Myanmar and the Socialist Republic of Vietnam. While these newcomers to ASEAN have contributed to the enlargement of the ASEAN market and the strengthening of the ASEAN's bargaining position vis-à-vis the rest of the world, they have also brought in a series of new problems that ASEAN has had to grapple with. These include among others the need for adjustments in intra-ASEAN trade, tariffs and investment rules, establishing mechanisms for narrowing the gap between the ASEAN-6 and the new ASEAN-4 and reformulating ASEAN's collective positions vis-à-vis the rest of the world in the light of the new ASEAN-4 having been under the socialist political regime in transition to market-oriented economies.

The other was the painful experience of the Asian Financial Crisis of 1997–98 and the consequent negative economic growth which all of a sudden the ASEAN countries had to go through, with lingering effects still felt today. It has been argued that behind the abrupt changes in the course of economic development of the ASEAN countries since the mid- 1990s lay the increasing pressures of economic globalization both promoted by the World Trade Organisation (WTO), successor to the General Agreement on Tariffs and Trade (GATT) in 1994 and assisted by International Monetary Fund (IMF) and the World Bank and the inability of these countries to adjust to the relentless challenges of globalization particularly in the financial sectors.

Three key political features of 2003 will continue to mark the regional climate in 2004. They are the U.S. war in Iraq, the spectre of terrorism and leadership changes in a few ASEAN countries.

When the United States asked for support for its war against the Saddam Hussein regime in Iraq, it was evident that ASEAN could not work out a common position on this as there were members who were willing to join the U.S. “coalition of the willing” and others who opposed the U.S. action in no uncertain terms. These differences will continue to be tested as the U.S. action drags on in Iraq.

The fortunate thing is it has not disrupted the common will to fight Islamic terrorist groups operating in the region. Terrorism remains the region's foremost security threat and while it is not acute enough to immobilize any daily routine in the ASEAN countries, it does have serious implications for foreign investors' confidence in the region. Some progress has been made in the bid to arrest key personnel in terrorist groups and disrupt their operations. However, when a bomb went off in Jakarta in August 2003, less than a year after the October 2002 bombing in Bali, everybody is reminded that the spectre of terrorism is very real and can strike anywhere any time. In May 2003, Cambodia with a minority Islamic community of 700,000 joined the list of ASEAN countries that have to take security action against people with connections to Islamic terrorist organizations.

In the midst of these bracing times, three major ASEAN countries — Indonesia, Malaysia and the Philippines — face national elections. In all cases, the incumbents are the favoured candidates to win, thus guaranteeing a measure of continuity. But in two of these three cases — Indonesia and the Philippines — the electoral outcomes are not likely to produce any reliable solution to ineffective governance. The 2003 national election in Cambodia has produced another hung legislature which can only prolong the political disorder of that country.

Southeast Asia's external security environment has remained relatively benign. This can be expected to continue into 2004–05. U.S.–China relations will remain mostly steady and peaceful because it is in the interest of both powers at this point of history to strengthen co-operation and manage issues that can cause bilateral tensions and conflict. The most important of these issues, Taiwan, still retains an element of unpredictability, especially in view of the Presidential election in Taiwan in 2004. However, even if the Democratic Progressive Party's candidate wins the election, the United States can be expected to restrain Taiwan from any subsequent act that could precipitate a crisis with China. Another subject that is likely to feature more prominently between the United States and China in 2004, an American election year, is the trade and currency issue, but it is unlikely to cause any significant damage to the relationship. The apparently growing U.S.– China co-operation will continue to be accompanied by competition for influence in the region, especially in Southeast Asia.

China–Japan relations will still be marked by underlying distrust but economic and other forces, like the ASEAN Plus Three — China, Japan and South Korea — regional framework will also be pulling them towards co-operation.

The situation on the Korean peninsula remains unstable but the common interest of the major powers to prevent conflict and to keep the peninsula nuclear free augurs well for the future. Particularly encouraging is the co-operation between the United States and China to resolve the nuclear crisis. Yet, the possibility of adverse outcomes to the crisis on the peninsula, including possible proliferation of weapons of mass destruction to terrorist groups, cannot be entirely ruled out, which means a degree of uncertainty and anxiety will remain pending the resolution of the crisis one way or another. Needless to say, the nature of the outcome in Korea could also have implications for Japan's security policies and for the American security posture in the Western Pacific, subjects of much interest to Southeast Asia.

Southeast Asia suffered a setback on its road to economic recovery in 2003. In the first half of 2003, regional economies were particularly affected by the Iraq War and the Severe Acute Respiratory Syndrome (SARS) outbreak. However, the relatively quick passing of these two major events as well as economic recoveries in the United States and Japan augur well for the region's economic outlook in 2004 and 2005.

According to the Asian Development Bank (ADB), the total economic costs of SARS in East and Southeast Asia are estimated at US$60 billion. The services sector, especially tourism and retail industries, were hardest hit. Nevertheless, the impact of SARS on the region has turned out to be less damaging than earlier anticipated. The epidemic, which broke out in March 2003, was generally contained by mid-2003. In fact, tourist arrivals and retail sales in SARS-affected countries such as Singapore and Hong Kong improved significantly by the third quarter of 2003. Although there are some concerns that SARS may re-occur in the near future, it is expected that the region's public health services would be better prepared to deal with the disease.

The economic outlook appears optimistic, with the region poised for a moderate comeback in 2004. The ADB forecasts that Southeast Asia will grow by 3.9 per cent in 2003 and by 4.9 per cent in 2004. In a recent economic report on East Asia, the World Bank highlighted several reasons for being sanguine, which include:

• The global economy is showing signs of recovery, driven by stronger economic growth from the United States and Japan.

• The world high technology industry is beginning to improve after a three-year slump.

• The emergence of China as a global industrial powerhouse is boosting trade and revitalizing intra-regional production networks in East Asia.

• Domestic economic and financial conditions in the region have significantly improved, e.g., private consumption and investment have strengthened, corporate and banking sectors are healthier.

Things are looking brighter for Brunei in 2004 and 2005. Many internal as well as external dynamics offer promising prospects that, if fully realised, could mean that Brunei would be one step closer to achieving a truly diversified and growing economy in the coming years.

In mid-January 2003, Brunei unveiled an ambitious five-year plan of US$4.5 billion (B$7.8 billion) aimed at diversifying its oil-dependent economy and attracting new foreign investments. Such a plan is expected to bear fruit in the shorter term but will only come into full play by 2008. The above plan is also expected to create 6,000 new jobs for Bruneians; if fulfilled, this should be a welcome relief for alleviating the current state of unemployment in the economy and dependence on public sector employment. The government sector employs about 75 per cent of Brunei’s workforce and, officially, Brunei’s unemployment stands at around 5 per cent, although the real figure has often been considered to be higher.

A global mega port hub for container handling at Pulau Muara Besar and a 500-megawatt power plant in Sungai Liang are also among some of the projects that have been proposed by the Brunei Economic Development Board (BEDB), with feasibility studies expected to be completed by end 2003. However, it is important to note that Brunei’s lack of experience in the shipping industry, strong port competition from Malaysia and Singapore, and the development of a neighbouring smelter in Sarawak, Malaysia, are factors that may work against reaping the full growth potential of these ventures. The BEDB has also proposed a strategy of developing downstream and manufacturing industries, notably petrochemicals, halal food, and tourism.