In 1998 Asia's financial and economic crisis impacted on Southeast Asia at a time when ASEAN member states were facing new challenges to regional unity. The economic crisis also tested the political stability of states that had relied on high levels of economic growth to shore up their legitimacy. This overview analyses the region's response to the challenges posed by ASEAN's enlargement, the stresses on regime legitimacy arising from the Asian financial crisis, and other challenges to regional security.

Regional Unity

In 1998, Myanmar and Cambodia posed challenges to ASEAN's longstanding policy of non-intervention in the internal affairs of member states. As early as June 1997, for example, Jusuf Wanandi, a member of Indonesia's Center for Strategic and International Studies, argued that ASEAN should make an exception to its non-interference principle in the case of Myanmar “but” he wrote, “it should be done quietly, in the right way, the ASEAN way”. A month later, no less than the then Deputy Prime Minister of Malaysia, Anwar Ibrahim, called for ASEAN to adopt a policy of “constructive intervention” towards Cambodia.

These proposals lay dormant until 1998 when they were revived and given a new spin by the Thai Foreign Minister, Surin Pitsuwan. In June, Surin argued that ASEAN's principle of non-interference should be replaced by “constructive intervention” in those cases where “a domestic concern poses a threat to regional security”. Surin's views reflected the frustration of the Thai national security bureaucracy over the failure of its policy of constructive engagement towards Myanmar to achieve any positive results.

As other ASEAN members objected, Surin modified his proposal. He replaced the expression “constructive intervention” with the phrase “flexible engagement”. This new formulation was spelled out in a short “non-paper” that was circulated at the July ASEAN Ministerial Meeting in Manila. Surin argued that if ASEAN failed to address the Asian economic crisis and the challenges of globalization and interdependence, its credibility and capacity to promote and protect its interests would erode.

Indonesia's armed forces will celebrate their 54th anniversary in 1999, but in vastly different circumstances than anyone might have imagined only a year ago. One year after the forced resignation of President Soeharto in May 1998, Indonesia is in political, economic, and social turmoil. Its armed forces establishment is essential for national survival, but its effectiveness as a security force is in question. Under attack for decades of abuses during the era of Soeharto's rule, its reputation has sunk to a low ebb in the esteem of the population.

Thus, in addition to its major missions to defend the nation and maintain domestic stability, Indonesia's armed forces (ABRI or Angkatan Bersenjata Republik Indonesia) must now face a plethora of new challenges to its unity and role in society.

ABRI remains the single most cohesive element in Indonesia today, but now — in addition to the normal challenges facing any armed force — it must meet the challenge of regaining the respect of its people. ABRI's reputation has been deeply damaged in a wave of national revulsion over the revelations of major human rights violations in the past. Only after ABRI regains the respect of its population can it most effectively assist the country to restore a tattered economy and implement political reform.

ABRI has important missions to perform at an important turning point in the nation's history. Its senior leadership is mindful of the need to restore lustre to its image. ABRI and its senior officers, speaking privately as well as in public, show a determination to respond to the challenges of a new future that holds both hope and worry for the world's fourth most populous country.

Primary Responsibility: Defence, Security, and Stability

National Defence

The primary responsibility of ABRI, like all nations' armed forces, is to counter any threat to the country's security, foreign or domestic. Indonesia is fortunate in that it does not confront a significant external threat.

In 1998, the Asian economic miracle seemed like a distant dream for the economies of Southeast Asia, with the string of bad news being blamed on excesses committed during the years of strong growth. The countries reeled from the continued withdrawal of capital from the region, the disintegration and collapse of confidence in domestic financial sectors, policy- and psychology-induced demand contractions, the interdependent weaknesses in the international value of their currencies, and political conflict and a significant erosion of the social consensus over economic policy.

The Southeast Asian economies faced these problems in common, but the impact varied according to the level of development, specific features in their financial systems, the nature of the governments' responses to the crisis, and the impact of the crisis on political stability.

The withdrawal of capital from the region in 1998 constituted the biggest shared factor among the Southeast Asian economies. The level of capital outflow, initiated by the Thai economic crisis of July 1997, increased in 1998 for the four most severely affected ASEAN economies — Indonesia, Malaysia, the Philippines, and Thailand — plus South Korea, with net capital outflows accelerating from US$1 billion in 1997 to $28 billion in 1998. In 1996, there had actually been net inflows of $103 billion.

The fickle nature of short-term portfolio investments was much in evidence during 1998. There was a brief slowdown of capital outflow from the region in the first quarter of 1998, but the levels accelerated as evidence of a deep recession in Japan became inescapable and the yen weakened, Russia's teetering economy saw the offering of interest rates on short-term Russian bonds reach 80 to 100 per cent, and Indonesia's thirty-year political arrangements disintegrated with President Soeharto's resignation in May.

In August, the Russian economic programme collapsed and a general retreat from portfolio investments in all emerging markets ensued. The premium on developing country debt shot up to unprecedented levels of 10 to 15 percentage points by October 1998.

At first glance, the year 1998 appears to be another landmark in Malaysian history. Anwar Ibrahim was sacked as Deputy Prime Minister on 2 September, and this engendered street protests against his dismissal in Kuala Lumpur for several months. Though street protests, demonstrations and public gatherings, politically motivated or otherwise, have occurred in the past, this is the first time in Malaysian politics that the public openly challenged a Prime Minister to resign — accusing him, among other things, of being authoritarian and serving only a small circle of cronies. Most observers argue that this marks the rise of a new social era in the country.

However, several months have passed and, at the time of writing, the political status quo remains intact. The government has acted to counteract its apparent erosion of legitimacy by campaigning for unity as if there is an external threat to national security, taking advantage particularly of U.S. Vice President Al Gore's support for reformasi at the November summit of the Asia-Pacific Economic Cooperation (APEC) forum in Kuala Lumpur. The protests have been declining in intensity, and their threat may be more apparent than real. Why did the protests not develop into a large-scale country-wide demand for reforms? Why does the general population seem indifferent and grossly depoliticized? It may be too early to dismiss prospects for reform, but the manner in which social stability has been maintained since the 1970s suggests that the reform movement faces large obstacles.

Since the 1970s, the government has used repression to ensure uninterrupted growth, but opposition has also been neutralized by newly gained affluence and consumerism, along with a weak labour organization, hegemonic tendencies in the class structure (particularly within the middle class), and the ethnic nature of Malaysian society. Non-governmental organizations (NGOs) and opposition politics have found it difficult, if not impossible, to grow, thus providing yet another source of social despondency. Progress achieved in economic development strengthened existing structures and institutions.

Myanmar, officially known as the Union of Myanmar, celebrated its fiftieth anniversary of independence on 4 January 1998. That event was the first major national celebration for the ruling State Peace and Development Council (SPDC) which inherited the organs of state power from its predecessor, the State Law and Order Restoration Council (SLORC), in November 1997. As such, the following national objectives in commemoration of the “Golden Jubilee Independence Day” were enunciated:

1. • All citizens to always collectively safeguard perpetuation of national independence and sovereignty.

2. • All citizens unitedly strive for non-disintegration of the Union and nondisintegration of national solidarity,

3. • All citizens to conscientiously implement the projects for building a modern developed new nation, and

4. • All citizens to be united in endeavouring for the emergence of an enduring constitution. (Myanmar Today, Commemorative Issue, 1998, p. 1).

These are not new objectives but are reformulations of the “Three Main National Causes” and two of the “Four Political Objectives” that had been established by the SLORC and are currently appearing in all Myanmar publications.

In his Independence Day message to the nation, Senior General Than Shwe, Chairman of the SPDC and the Prime Minister, reiterated the aforementioned objectives urging “all … Union nationals to implement these four national objectives with might and main, with oneness of mind and in unity” (New Light of Myanmar [NLM], 4 January 1998).

Notwithstanding such an exhortation by the head of state and potentially promising developments in the previous year, exemplified by the rejuvenation of the military junta with new blood and Myanmar's entry into the Association of Southeast Asian Nations (ASEAN), 1998 turned out to be a year in which the economic and political prospects appeared uncertain. The SPDC's twin objectives of instituting political reforms in which the military would play a vital role in a multi-party constitutional system while accelerating economic growth in a market-orientated economic setting appeared to be running into some difficulties.

Introduction

In January 1996, at the official opening of the Singapore Art Museum, Prime Minister Goh Chok Tong sketched a vision for the future of Singapore's culture industry: to re-create Singapore's historical role as an entrepôt for art, culture, civilization and ideas. This vision built on his message earlier in the month to Singaporeans:

The call seemed timely, especially with the proliferating discussions on the coming of the information-intensive, knowledge-based economy, and the increasing role that service-based enterprises will have in the economic arrangements in the Singapore of the future. Political speeches and discourse in the media had focused on how Singapore needs to make the leap from being one of the newly industrialized countries to a post-industrial economy, where a higher degree of knowledge, state-of-the-art technology, and a range of service industries will be the norm. In that economy, the speed of change acquires special importance, and so it would need workers who have “critical and creative skills”, are committed to the value of “life-long learning”, and are adaptable enough to meet the mercurial environment that would face them. Given Singapore's much-touted dearth of natural resources, and that the most valuable and renewable resource is its people, the quality of human resources would mean everything in such an economy. It thus makes pragmatic sense to invest in cultural development for the needs of business and commerce, on the assumption that, with general cultural development (in the sense of the practice and application of the arts), individual creativity would be cultivated and nurtured. The statements by the Prime Minister also gave promise to the belief held by some that the government will continue to build and help develop the infrastructure for the arts that it had in place, which would eventually articulate what it had envisioned for Singapore — “A Global City for the Arts”.

At the end of 1997, many Thai people hoped that 1998 would be the starting point for reforming the country. Even though the Thai economy was severely hit by the economic crisis, the new government of Chuan Leekpai promised economic recovery and better governance. As time went by, however, and the economy went into a sharp decline, expectations slowly diminished. The Chuan government rode out these difficulties, and had some success in projecting itself as the only option, but encountered increasing pressures from a critical civil society.

Thailand under the IMF

When the International Monetary Fund (IMF) was asked by Thailand to help in the crisis after the devaluation of the baht in July 1997, many sectors of Thai society welcomed it as a force that could discipline what was perceived as an irresponsible gang of politicians and businessmen whose ineptitude had brought the country to its knees. Many technocrats even hoped that the structural adjustment programme might help dismantle crony capitalism in Thailand.

Initially, the IMF imposed a largely traditional formula on Thailand, involving cuts in government funding, increased taxation, high interest rates, greater disclosure, and financial sector reforms. It did, however, require much greater reforms of the financial sector than was normal for such programmes, together with other structural reforms to open the country up to foreign investment, and accelerate the spluttering pace of privatization. Thailand had experienced IMF tutelage before — in the mid-1980s when a period of global recession had a particularly debilitating effect on the financial sector. It was prepared to accept new IMF controls because officials felt that the key to recovery was to win back the confidence of foreign capital, and to do this it had to adhere to the IMF programme.

The Chuan government was more willing than its predecessor to take tough decisions, and to implement them. However, there was no initial easing of the economic problems.

On 21 May 1998 Soeharto announced that he was unable to continue leading the nation and had decided to step down. His deputy, B.J. Habibie, was immediately sworn in as the new President. This dramatic three-minute event ended the Soeharto era. It was the culmination of several dramatic months of rising political violence and protest, but failed to usher in a much hoped-for era of political stability.

Economic Crisis

The Indonesian economy deteriorated rapidly following the onset of the regional economic crisis that began in the middle of 1997 in Thailand. Indonesia, forced to accept a US$43 billion bail-out under the International Monetary Fund (IMF) in September, was the hardest hit by the crisis. The value of the rupiah dropped from Rp 2,350 per U.S. dollar in June 1997 to Rp 16,500 in January 1998. By early April, it was back to Rp 9,000 per U.S. dollar. However, the low value of the rupiah made it impossible for Indonesian companies to import goods and to pay debts. Prices of imported and domestic products rose drastically and many companies faced bankruptcy. Unemployment rates also jumped. These developments affected Indonesian politics. The presidential election in March was conducted under the shadow of economic turmoil and increasing discontent.

There were two interpretations of the economic crisis in Indonesia. The government view was that the causes were mainly economic. The problems could be solved by undertaking economic reforms. The situation would then improve, and political reforms would not be required.

The other view was that the crisis was both economic and political in nature. Economic problems included over-expansion of the Indonesian economy without sound infrastructure, overuse of foreign investments in non-productive sectors (for example, real estate), and rampant corruption and cronyism, which resulted in large debts being incurred by both private (US$74 billion) and state (US$63.4 billion) sectors. Indebted private companies were mostly owned by the New Order élite and Chinese conglomerates. Many argued that this was the root of the problem.

“Nothing in Singapore happens by accident.” This old Singaporean saying, though exaggerated, does essentially capture a home-truth — that the island-republic is small enough (in land area and population size) to have every aspect of its social, political and economic life carefully managed (almost micro-managed) by a political élite that has remained the same for four decades. That élite has made predictability and continuity its most enduring virtues. Nineteen ninetyeight exemplified aspects of the old Singaporean saying. But the year also had a few surprises that caught both the leaders and people of Singapore off-guard. Even in those moments, however, the national approach was to manage difficulties calmly and in a measured way. The emphasis was one of management — management of people's expectations and management of the national spirit and morale in the face of economic and geopolitical uncertainties.

Like much of the rest of Southeast Asia, the consuming preoccupation of Singapore in 1998 was to grapple with an economic downturn which had its origins in the previous year when the devaluation of the Thai baht (and the ensuing economic malaise) led to a contagion effect throughout the region. A second preoccupation was clearly the attempts to mitigate a deterioration of Singapore's external geopolitical environment as a result of strained bilateral ties with its two closest neighbours, Malaysia and Indonesia. In terms of domestic politics, the year was relatively quiescent, with the focus being on a debate about civil society; a few political personalities were also in the news, but theirs were fleeting references in media headlines more often dominated by extraordinary events in and around the region.

Managing People's Expectations in the Economic Downturn

Singapore has always prided itself for its astounding economic success, grounded as it is in sound economic fundamentals. Therefore, in the economic crisis that was sweeping Southeast Asia, Singapore in 1998 attempted to distinguish itself from the rest of the region. Initially, this was not an unfounded attempt as the republic was relatively less affected by the regional crisis than were Thailand, Malaysia, Indonesia, and the Philippines.

On 21 September 1997 Filipinos marked the twenty-fifth anniversary of the declaration of martial law by President Ferdinand Marcos. On this fateful day in 1972 began more than a decade of repression and authoritarian rule. A more appropriate date could not have been chosen to gather over half a million citizens in a powerful show of protest against a campaign to amend the Philippine Constitution of 1987. Charter change itself was clearly not the problem. What bothered many was the prospect of a Marcos-like manoeuvre to change the rules in mid-game to perpetuate an incumbent in power. It was precisely in reaction to this ploy by the former dictator that the framers of the 1987 Constitution mandated a six-year term for the president, with no re-election. So when moves for amendment were initiated a mere ten years after the end of authoritarianism, an equally strong counter-movement developed, aimed mainly at blocking any attempt to extend President Fidel Ramos' term.

Led by such powerful champions of constitutional democracy as former President Corazón Aquino and Jaime Cardinal Sin, the Roman Catholic Archbishop of Manila, the anti-charter change movement was supported by an impressive array of civic, business, and political leaders. Even more significantly, the movement was also backed by a whole spectrum of people's organizations (POs) and non-governmental organizations (NGOs), including labour unions, national peasant associations, human rights groups, sector-based and multisectoral coalitions, and cause-oriented groups, identified with a whole spectrum of ideological formations from the extreme left to the moderate right.

For months, the movement fortified itself, meeting, strategizing, mobilizing, and projecting itself prominently in the media. In the end, the efforts of these groups paid off. Confronted with mass support for the 21 September rally, President Ramos finally declared that he would not seek re-election, and later anointed his own candidate, José de Venecia, for the May 1998 presidential contest.

Many have hailed these events as yet another manifestation of the strength of Philippine democratic tradition.

In December 1974 thousands of demonstrators in Kuala Lumpur were dispersed by baton-wielding police, aided by tear gas. Hundreds were arrested. Among those detained under the Internal Security Act (ISA) was youth leader Anwar Ibrahim, probably at the behest of Education Minister Dr Mahathir Mohamad. In September 1998 the two key actors held different positions, but the scenes played out were much the same.

September began with the unexpected imposition of currency controls on day one. More dramatically, on day two Prime Minister Mahathir sacked Anwar from the Deputy Prime Minister and Finance portfolios. In the early hours of day four Anwar was stripped of both the deputy leadership and even membership in the United Malays National Organization (UMNO), the dominant party in the ruling coalition. On 20 September balaclava-clad, M16-wielding police Special Forces broke down an open door and arrested Anwar, who was then held under the ISA for allegedly endangering public security. At the end of the month he was arraigned before the court, charged with five counts of corruption (abuse of power) and five of sodomy.

The drama of September brought Malaysia unsought international prominence, and opened up many questions. What went wrong between the Prime Minister and his designated heir? Did the fall-out from these events threaten Dr Mahathir's long rule? How strong was the movement for reformasi? Could Anwar make a comeback? Was this yet another power struggle between UMNO factions, or did it represent something more profound?

What Went Wrong?

Relations between Mahathir and Anwar have long been complicated. They first came in contact in 1969, when both were in opposition to Prime Minister Tunku Abdul Rahman. Mahathir spoke at student meetings organized by Anwar, and a student journal under Anwar published a chapter from Mahathir's Malay Dilemma, after the book had been banned.

Domestic Political Affairs

As in China and Vietnam, reforms in the Lao People's Democratic Republic (LPDR) have hardly touched the political arena. Laos still has a one-party system of government, which is officially legalized and guaranteed under the constitution. Even if terms like “socialist” and “communist” are no longer in official usage and do not appear in the constitution, the Laotian leadership holds fast to the “Laotian way”, in which traditional communist elements exist alongside reforms and an open-door policy. The Sixth Party Congress of the Lao People's Revolutionary Party (LPRP), held in March 1996, continued on its course towards a market economy even if the reforms are to be implemented slowly, placing emphasis on wholesome social conditions. The tolerance of Theravada Buddhism and its clergy has advanced further, and the domestic political situation is relatively stable. In the past, there had been occasional guerrilla attacks, which, though no grave threat to the government, did make it necessary for people to obtain special permits (until 1994) for travel outside the area around Vientiane. However, in general, today there are no risks for tourists going to the promoted and permitted tourist destinations.

In the second week of January 1998 the National Assembly (NA) announced its new composition after the general election. The Assembly consists of 99 members, 21 of whom are women. Only 7 of the 28 women candidates were not elected. Out of the 99 members, 68 are from local authorities, and 31 from the central government. Lao Loum members, especially ethnic Lao, make up 56.6 per cent. One of the selected candidates is independent. The Standing Committee of the new NA consists of seven members. There is a president of the Assembly and three vice-presidents, one more than in the last legislative assembly.

In 1998, President Nouhak Phoumsavanh resigned his position as President of the Lao PDR.