INTRODUCTION

As the region's first communist state, Vietnam has followed a different political trajectory from Southeast Asian neighbours. That path has been complicated by almost five decades of warfare, on its own territory until 1975 (and again briefly in 1979) then in Cambodia from the end of 1978. A glorious victory over the might of United States-led forces, then an ambiguous stalemate in Cambodia, has been followed by several setbacks in efforts to “win the peace” since the late 1980s.

Ho Chi Minh declared Vietnam's independence in September 1945, but failed to receive recognition from the international community. War between Ho's Democratic Republic of Vietnam (DRV) and France followed, and lasted until the French defeat at the battle of Dien Bien Phu in 1954. The subsequent Geneva Conference temporarily divided Vietnam into two military regroupment zones at the seventeenth parallel and endorsed a reunification of the two Vietnams through a general election in 1956. However, the United States, motivated by Cold War fears of communism, moved to support a separate southern state under the leadership of Ngo Dinh Diem. That maintained Vietnam's partition until the fall of Saigon in 1975. The DRV followed a socialist model of development, and after reunification this model was imposed on the newly-liberated South. The economic crisis that followed forced the leadership to implement reform measures which culminated in the official endorsement of the policy of doi moi (renewal) at the Sixth National Party Congress of the Vietnamese Communist Party (VCP) in 1986.

INTRODUCTION

Malaysia stands out for having one of the most complex ethnic mixes in Southeast Asia, or indeed the world. It has, since independence, achieved a remarkable degree of political stability, along with economic and social progress, but has had many turbulent moments and now faces new challenges from the forces of reformasi.

Malaysia's golden age is the fifteenth century, when Malacca held sway over small sultanates that covered peninsular Malaysia, and similar entities in parts of Indonesia. Malacca was at that time one of the region's dominant powers, a major trading port, and a centre for spreading Islam. Its cosmopolitan city included traders from China, and traders and Islamic clerics from India and the Middle East. It had a sophisticated system of government, and well-developed laws (traditional — adat — and Islamic). The main historical document surviving this period, the Sejarah Melayu (Malay History), is still regarded as an important repository of Malay norms.

After Portugal conquered Malacca in 1511, the peninsula broke into a number of sultanates which retained a loose independence—sometimes falling under the influence of more powerful local neighbours or states in Thailand or Indonesia. British influence began to expand over the peninsula from the late eighteenth century, initially through trade and then with toeholds in Penang (1786), Singapore (1819) and Malacca (1824). Deeper colonial impact dates from 1874, when Britain signed the Pangkor Agreement with Perak, giving it the power to “advise” state authorities—a misnomer really since British advice was seldom rejected. Such “indirect” rule, with the form of Malay sovereignty maintained, was progressively extended to all peninsular states (collectively know as Malaya) by 1915. In Borneo, British adventurer James Brooke (first of the “White Rajas”) moved into Sarawak in 1843, and a commercial firm, the North Borneo Trading Company, took over Sabah in 1881.

INTRODUCTION

Myanmar is perhaps the most controversial country in Southeast Asia. The legitimacy and the authority of the ruling junta have been contested since its inception in 1988, not only by the legally constituted political opposition and a constellation of illegal or unlawful organizations, insurgents and expatriate groups, but also by some Western states and non-governmental organizations as well. Even its name is in dispute — many foreigners and expatriates prefer Burma, the accepted designation from colonial times until changed by the junta in June 1989.

Myanmar nation-building began around the 11th century with the establishment of Bamar (formerly known as Burman) hegemony over other indigenous “nations”, but was interrupted by British conquest, completed in 1885. The traditional concept of dynastic rule and legitimate authority goes back much further in time and was influenced by Buddhist and Hinduistic concepts of leadership. Despite personalized rule, a tradition of righteous kingship guided by moral and ethical codes of conduct served as a counterbalance to despotic tendencies of absolutist rule.

When the country was governed as a province of British India “Burma Proper” was separated from the “frontier areas” (half the country comprising the Arakan hill tracts to the West and the hill areas bordering China, Laos and Thailand in the North and East) by the colonial administration. The latter came under indirect rule, whereby local ethnic chieftains were allowed to maintain their power and status. Thus an opportunity for the indigenous nationalities to develop a sense of belonging and bonding culminating in an “imagined community” that could forge a modern nation-state out of disparate ethnic nations was lost.

INTRODUCTION

On 12 June 1998, the Philippines celebrated 100 years of independence from Spanish colonialism. It was a century since the country declared itself a nation-state, an independent republic after 333 years under Spanish colonial rule. Though the first country in Asia that gained its independence through a bloody revolution the Philippines immediately had to accept American hegemony for another 46 years and Japanese rule for a brief three years. The birth of the Philippine nation-state in 1898 and granting of political independence by the Americans in 1946 are historical milestones in the country's history that reflect the Filipinos resolve to self-govern and determine their future as one country sans foreign colonizers.

Characteristic of a vibrant democracy, internal divisiveness and conflict between and among classes, ideologies, and ethnicities, replaced the national solidarity exhibited by the people in their anti-colonial struggles immediately after America shifted the reins of government to Filipinos. Philippine history has been characterized by the dualisms of colonialism and neocolonialism, revolution and counter-revolution, and dictatorship and democracy. The difficult but exciting process of making and unmaking of a liberal democratic nation-state remains a continuing one. The country is shaped by its past, in defining its vision, national goals and objectives, policies, institutions, structures, and processes. Achieving national unity in diversity continuous to be a daunting task in the post-colonial era.

Archeological and anthropological evidences show that a thriving civilization already existed in the islands before the arrival of the first European explorers. Beginning about 1000 BC, these original inhabitants of what became the Philippine nation were joined by migrating Malays, Negritos, and Indonesians.

Attempting to explain government and politics for ten Southeast Asian countries in a single volume is an ambitious undertaking. Much has been written on the region in recent years, but most accounts focus on a single country or a single issue (such as democracy, or elections). There is, however, an obvious need for a concise, up-to-date, overview volume that addresses core political science issues — institutions of government, and the nature of political practice — in all Southeast Asian countries. In the writer's experience, academics, policy-makers, journalists and others have frequently spoken of such a need.

Several attempts have sought to meet such an objective in the past. Early works appeared soon after the term Southeast Asia was adopted — to define a war theatre during World War II — but the first detailed account was Government and Politics of Southeast Asia, edited by George Kahin. This was published by Cornell University Press in 1959, then reappeared in an extensively revised form in 1964. Each of the then eight countries (minus Brunei, and with Singapore as part of Malaysia) was examined in terms of four headings: historical background; socio-economic setting; the political process; and major problems. This was a seminal work, and nothing that followed has matched its quality.

INTRODUCTION

Singapore was governed by the British for nearly 140 years, from its founding by Stamford Raffles in January 1819 until its attainment of self-government in June 1959. In July 1926, Singapore became part of the Straits Settlements together with Malacca and Penang. The pre-colony phase ended in 1867 when control of the Straits Settlements passed from the India Office to the Colonial Office. British colonial rule was briefly interrupted by the Japanese occupation (February 1942–August 1945). Singapore became a crown colony in 1946 and its constitutional status was changed to a ministerial form of government under the Rendel Constitution in 1955.

The first general election held in April 1955 resulted in the formation of the Labour Front coalition government under the leadership of David Marshall. The People's Action Party (PAP) government assumed office in June 1959 after winning 43 of the 51 seats in the May 1959 general election and capturing 54.1 per cent of the valid votes. On 16 September 1963, Singapore achieved independence from Britain by becoming one of the 14 states of the Federation of Malaysia. However, Singapore's sojourn in the Federation was brief as after 23 months, it separated from Malaysia on 9 August 1965, and became the 117th member of the United Nations on 21 September 1965.

Even though Singapore has been independent for the past 35 years, there has been no change in government during this period as the PAP government was re-elected nine times. Lee Kuan Yew served as Prime Minister from June 1959 until November 1990, when he became Senior Minister and was succeeded by Goh Chok Tong. This change in political leadership has also been accompanied by a shift from a paternalistic to a more consultative leadership style.

INTRODUCTION

Cambodia is one of the oldest states in Southeast Asia, but longevity has not provided a shield against political turmoil. The Khmer Rouge government gained international notoriety in the 1970s, turning the whole country into killing fields, and subsequent governments have found it hard to escape this legacy.

From the ninth to the thirteenth centuries Cambodia's Angkor dynasty ruled over much of the Southeast Asia mainland. It left historical remains that are among the wonders of the world, and evidence of a highly developed civilization. From the fourteenth century Cambodia began to contract, squeezed by Thailand on one side and Vietnam on the other. France made it a protectorate in 1863, and the state assumed its present form after Battambang and Siem Riep were wrested from Thailand in 1904 and 1907. Apart from a brief Japanese interlude during World War II, it remained a French colony until independence in 1953.

Cambodia shares long and often contested borders with Laos (in the north), Thailand (in the west), and Vietnam (in the east). It remains a predominantly agrarian society, with 75 to 80 per cent of the population earning their living from agriculture. Forests are among the country's most important natural resources, but have been depleted rapidly (often illegally) since the mid-1990s. Despite being resource-rich, Cambodia remains poor. This is largely the legacy of the civil war in the first half of the 1970s and the Khmer Rouge reign of terror. In the early 1980s, a socialist government started to rebuild the economy from scratch. Faced with economic stagnation, the government moved to adopt a policy of liberalization late in the decade.

INTRODUCTION

The micro-state Brunei Darussalam (“The Abode of Peace”) regained its full independence on 1 January 1984. It is the rump of a once extensive empire covering Borneo and surrounding islands, whose “Golden Age” is linked to the name of Sultan Bolkiah (late 15th or early 16th century). Bruneian influence began to erode after Spanish settlement in the Philippines in the late 16th century, then at the hands of a dynamic former vassal, Sulu, in the mid-17th. In the 19th it lost most of its territories on Borneo to Sarawak under the “White Rajas” (Brookes) and North Borneo (Sabah) under Chartered Company rule. Today's Brunei is totally enclosed — as well as bisected — by Sarawak (Malaysia), except to seaward on the north side.

Brunei was saved from extinction by the establishment of a British “Residency” in 1906, a system of classic Indirect Rule which lasted until 1959 (apart from the Japanese interlude). In 1959, thanks mainly to the strong will and dynastic vision of Sultan Omar Ali Saifuddin III, but in part because Britain feared the Indonesian-style radical nationalism of the Parti Rakyat Brunei (PRB or Brunei People's Party), the Colonial Office yielded executive power over domestic administration to the monarchy. This was contrary to London's original intention of establishing elected government, corresponding to developments in the neighbouring Federation of Malaya, and Singapore.

From conception to completion this book was with me for most of four years in Singapore at the Institute of Southeast Asian Studies. It was an exciting, if sometimes worrying time to work in and on Southeast Asia — a Dickensonian best of times and worst of times. I had scarcely acclimatized when Thailand floated the baht on a fateful 2 July 1997, with economic, political and social consequences for the region that are still being worked out. ISEAS provided an ideal vantagepoint to track these developments, and ensure they are reflected in this work.

The book is largely an ISEAS in-house product. Six of the ten country chapters are by ISEAS staff, and the rest by authors who have had a close association with the Institute over the years — part of a wide network of people sometimes considered the ISEAS alumni. I am grateful to all for their willingness to adhere to a common framework, and their patience in entertaining a wide range of demanding editorial requests. Many others in ISEAS also made important contributions. The book would not have been possible without support from the Director, Professor Chia Siow Yue. The Administration provided sterling assistance, particularly in responding to complicated word processing requests through numerous drafts. The Publications Unit provided expert copy editing, indexing and design and production. The Library assisted with its unique collection on Southeast Asia, and Ms Susan Low compiled the material for the Key Statistics in each country chapter.

An important decision in the design of macroeconomic policies in any country is the choice of currency and monetary regime. Not surprisingly, there is an enormous literature on currency and monetary regimes. This chapter sets out a policy menu for East Timor based on this literature, constructed in a way that suits the country's characteristics and needs.

There are two basic decisions to be made in choosing a currency and monetary regime. The first is whether to have a fixed or a flexible exchange rate. The decision to fix or float depends on weighing the advantages of one against the other, and assessing which works in practice. The second decision concerns the detail of the arrangements.

The chapter is structured in the following way. The following section looks at the first decision: whether to fix or to float the exchange rate, and what this means for monetary policy. The third section assesses different types of fixed exchange rate regimes, namely the standard peg, currency board and ‘dollar-ization’. The fourth section looks at which countries would be suitable pegging partners for East Timor. The chapter concludes by offering an assessment.

FIX OR FLOAT?

The first decision in selecting a currency and monetary regime is whether to fix or to float the currency. For a small economy like East Timor, there are two main issues to consider in making this choice.

Which Regime Is More Stabilizing?

The first is to assess the relative merits of having a fixed or flexible exchange rate. This decision ultimately turns on whether an independent exchange rate provides a country with a means to stabilize its economy as the external economic circumstances it faces change. If being able to change the exchange rate helps stabilize the economy, then having a more flexible regime is, in principle, helpful and preferable.

East Timor is a remarkably diverse territory. It is certainly as diverse in ecological terms as it is in its linguistic and ethnic make-up. A long history of human settlement has contributed to this diversity, shaping the environment as it has the cultures of the territory. Any planning for the development of East Timor as a nation must take into account this significant diversity.

In this chapter, I want to outline some of the main features of East Timor's environmental, demographic and ethno-linguistic diversity. This outlining process is inevitably an exercise in simplification but it does provide a framework within which to examine issues of development. I then want to consider how historical developments have contributed to the patterning of livelihood strategies across the territory. Finally, I want to look at recent changes that have occurred in East Timor, strengthening certain of these local patterns and altering others. In this section of the chapter, I want to focus on the contemporary situation and on the problems and possibilities of differential local development.

THE AGRO-ECOLOGICAL ZONES OF EAST TIMOR

Given its relatively small size, East Timor is comprised of a surprisingly diverse ecology. Much of this diversity is a product of the territory's complex landscape and variable seasonal rainfall. Based mainly on factors of altitude and rainfall, East Timor can be divided into six different ‘agro-climatic’ zones. Although further differentiation among these zones is possible, and indeed necessary, to a proper understanding of local agriculture, recognition of these zones provides a first step to comprehending East Timor's diversity.

The structure of these zones takes account of the fact that East Timor is divided by a mountainous spine that transverses the territory from west to east. In broad terms, 21 per cent of East Timor lies below 100 metres; 44 per cent between 500 and 1,000 metres; while the remaining 35 per cent is over 1,000 metres in elevation.

The relationship between country size and economic welfare is imprinted, rightly or not, in the perceptions of policy-makers and lay people. In spite of this, little attention has been devoted until recently to studying the specific issues that affect small countries. There are at least three good reasons to study small countries. First, about one in four countries has a population of less than 2 million people, even if the share of the world population living in these countries is less than 1 per cent. Second, the number of small countries has increased substantially in the 1990s and is likely to continue to increase. As international trade and capital flows expand and democracy becomes the norm, the relative cost of being small decreases. Third, small countries are not just smaller versions of large countries.

We distinguish political viability (the ability of a state to survive in the international community) from economic viability (its capacity to ensure a reasonable level of prosperity for its citizens). Our focus is on economic viability, more specifically, economic growth. We study the relationship between country size and economic growth in light of the economics literature, deriving implications for the case of East Timor.

SIZE AND ECONOMIC PERFORMANCE

Economies of Scale

Neoclassical growth theory identified the sources of per capita income growth as capital accumulation (the increase in the amount of physical or human capital available to each worker) and exogenous technological progress (the increase in output over time, using the same amount of capital and labour). Scale factors played little or no role in the original neoclassical framework. Endogenous growth theory shifted the focus to the root causes of technological progress. The scale of the economy became a pre-eminent candidate to explain technological progress, as endogenous growth theory associated market scale with the emergence and application of innovations. The scale of the market has been measured variously as the total amount of physical capital (Romer 1986), human capital (Romer 1990) or population (Jones 1997).