The Philippines in the first half of 1998 surmounted a test of its commitment to constitutional democracy. By the middle of the year, a process of political succession had been settled by relatively clean and orderly national and local elections. The succeeding peaceful transition of power at all elected levels of government demonstrated a deepening of the country's democratic institutions. This democratic process of political change was particularly notable because it occurred in the midst of turbulent regional and domestic economic conditions. Following its assumption of office in June, the new government immediately faced the complex consequences of the regional financial crisis. Adhering to market-oriented policies along the lines recommended by international financial institutions, the country posted modest growth for the year. With international and domestic business confidence returning, in part because of the comparative political stability of the country, the Philippines ended the year demonstrably certain about its pursuit of market reforms in the context of democratic politics.

The Ramos Legacy: Strengthening the State

When Fidel Ramos took over the reins of government from Corazon Aquino in 1992, he inherited a state with declining economic growth compounded by pressing domestic problems (notably the energy shortage) and foreign policy issues (notably the aftermath of the U.S. withdrawal from Filipino military bases). Benefiting from Aquino's anti-authoritarian leadership, Ramos inherited a relatively stable state that survived a series of coup attempts and made a successful transition from authoritarianism. The key challenge for the Ramos government was to lead a continuing transition, not merely surviving authoritarianism but also deepening the return of democratic institutions and recovering economic competitiveness at the same time.

The Ramos government was aware of the political and institutional infirmities of the Philippine state. The Philippine political economy had long been characterized as a “weak state” persistently plundered by predatory segments of its “strong society”.

For the second year in a row, the economic crisis dominated the region. Growth rates dropped precipitously. Unemployment, social problems, and political unrest grew. By the end of 1998 there were tentative signs of economies stabilizing and some success in alleviating social problems. But some of the political fallout had not yet run its course.

Southeast Asian economies experienced drastic declines, including negative rates of growth of 15 per cent for Indonesia, 8 per cent for Thailand, and 7 per cent for Malaysia. Policies at the start of the year emphasized fiscal austerity and high interest rates, but these were gradually eased as deflation became the major problem. By year's end, most indicators suggested that the economies had bottomed. Currencies reached their lowest point against the U.S. dollar in January, but stabilized and even strengthened thereafter. The crisis left questions about managing external openness (particularly large international capital flows), governance (tackling “corruption, collusion, and nepotism”), and sources of growth (the importance of domestic demand and human investment compared to export-led growth).

Politically, ASEAN (the Association of Southeast Asian Nations) was also thrown off course by the crisis. While members initially worked together to address economic problems, co-operation faltered after President Soeharto was forced to resign in Indonesia, and Prime Minister Mahathir Mohamad sacked his deputy, Anwar Ibrahim, in Malaysia. Soeharto's ouster removed an ASEAN founding father. Anwar's sacking, internment, and black eye while in custody, led to unprecedented public criticisms from leaders in the Philippines, Indonesia and Thailand. This, along with a series of bilateral disputes (particularly between Malaysia and Singapore), gave the impression of an organization in disarray. ASEAN attempted to heal the wounds at its Annual Ministerial Meeting in July, and its Sixth Summit in December, but with only limited success.

The broader Asia-Pacific geopolitical environment remained relatively benign. With President Bill Clinton's visit to China, the U.S.-China relationship seemed to improve to a level not seen since 1989.

Traditionally, Brunei has prided itself on its ability to forge its own patterns of social and economic development coupled with its distinctive culture and system of governance. In its elaboration of the concept of Malay Muslim Monarchy (Melayu, Islam, Beraja — MIB), and its efforts to direct economic and social development at its own pace and with its own priorities, the country and its ruler have sought to channel and control external influences, whether those influences are felt in political, economic or cultural terms. That desire remains strong and has been an important motif in royal pronouncements (titah) and in the media throughout 1998. But there can be little doubt that the impact of the economic downturn in the region, coupled with the unravelling of the complex tangle of business failures surrounding the collapse of Amedeo Corporation, the failed business conglomerate controlled by Prince Jefri, the Sultan's brother, has demonstrated that the shape of Brunei's society and economy cannot be insulated from external influences.

The impact of regional and local changes has been sharp. The economic downturn, a fall in the value of the Brunei dollar (around 15 per cent against the US$), the collapse of the rental property market, and a slump in the sales of consumer durables, brought home to all sectors of Brunei society the realities of regional and global economic interdependence. Neither the economy nor the political and social system is in crisis, that much is clear. But the events of the last year have been a shock to Bruneians and to the expatriate community that relied on jobs in the state, and that shock brought about strong reactions from the Sultan, from the political élite and from all levels of government. The traditionally quiescent pace of political and economic life in Brunei has been rudely awakened by these changes.

Economic Change

Economic stresses underpinned social and political life in Brunei in the past year to a much greater extent than usual.

The most striking feature of the July 1998 elections in Cambodia was how closely they resembled the electoral exercise of May 1993. In 1993, the call to the polls was couched in terms of lofty goals of democratization of the political process in Cambodia. The actual electoral process nonetheless demonstrated that it was through the playing out of long-standing dynamics of rivalry and intimidation between opposing factions, much more than through an appeal to the popular will, that the question of power would be settled in the country. In a context where it was becoming increasingly clear that the results of the elections would not by themselves settle that question and that some form of accommodation would have to be found among the leaders of the different opposing factions, King Sihanouk provided the conduit through which inter-factional discussions began. These talks led to a nominal coalition agreement which, in reality, put the greatest measure of political power in Hun Sen's hands, and reflected little of the redistribution of power required by the results of the elections. Exactly the same, it seems, could be said about the July 1998 elections.

To that extent, the 1998 elections and the series of political developments surrounding them represented not so much a first step in an overdue process of democratization of the political environment in Cambodia, but rather a movement full circle to precisely the situation of autocracy which these elections were supposed to remedy. There was thus, in this perspective, the sense of a force of inertia at play in Cambodian politics, embedded in the politics and sociology of the inter-factional rivalry which has dominated Cambodia for so long, and giving rise only to a deep sense of pessimism as to the possibility of seeing the country move towards some form of political pluralism and freedom.

Some of the developments of the year, however, did lend themselves to a greater sense of optimism. The last weeks of 1998 brought with them the end of the Khmer Rouge when the last remnants of the guerrilla movement came out of the jungle and surrendered to the Phnom Penh government.

The results of the 1998 Cambodian elections confounded both international observers and opposition candidates. In a polling day environment called “free and fair” by assorted international observers, the Cambodian People's Party (CPP) won most seats. This party had seized power from its coalition partner the previous year by force, and had a twenty-year history of ruling in an oppressive manner, backed for a decade by the troops of Cambodia's historic enemies, the Vietnamese.

Under these circumstances, one might have expected the CPP to have been held democratically accountable for years of corruption, human rights violations, forced conscription and silencing of dissent, and ousted decisively by an impoverished and war-weary electorate. Vigorous election campaigns fought by two major opposition parties, under the leadership of a member of the much-loved royal family, Prince Norodom Ranariddh, and a charismatic former Finance Minister, Sam Rainsy, called for this outcome.

Rainsy told voters shortly before polling day:

Yet the CPP received 41.4 per cent share of the vote (compared to 31.7 per cent for Ranariddh's FUNCINPEC Party, or the National United Front for an Independent, Neutral, Peaceful, and Co-operative Cambodia, and 14.3 per cent for the Sam Rainsy Party), and a simple majority of parliamentary seats (64 seats compared to FUNCINPEC's 43 and the Sam Rainsy Party's 15).

Seeking to explain this phenomenon, the opposition denounced the electoral process as flawed, citing counting irregularities and voter intimidation.

Introduction

A vast amount has been published on the impact of the recent regional financial and economic turmoil — commonly termed the “Asian Crisis” — on the Asia-Pacific region, the emerging markets in general, and the global economy as a whole. However, despite their location close to the epicentre of this turmoil, there has been relatively little commentary or analysis on the impact of the Asian crisis on the four transitional countries of Southeast Asia: Cambodia, Laos, Myanmar, and Vietnam. This essay attempts to rectify, at least in part, this apparent gap in the coverage of the four countries, which will collectively be called the Greater Mekong Sub-region (GMS) for the purpose of this chapter. Having embarked on economic reform programmes in the latter part of the 1980s — broadly intended to unwind a significant part of the command economy structures, and replace them with more efficient market-oriented macroeconomic management methods — all four GMS countries were struck by the Asian crisis just as they were entering their second, and perhaps more challenging, decade of economic liberalization.

The adverse effects of the Asian crisis now appear to be greater and more far-reaching for the GMS countries than most observers and political leaders had first envisaged in late 1997. Initially sparked by a foreign exchange crisis in Thailand (a country which shares extended land borders with three of the GMS countries) in early July 1997, financial instability rapidly spread to the currencies and banking sectors of various other countries in the region, before burgeoning into a wider economic crisis for the Asia-Pacific, and leading to a contagion effect across a wide spectrum of the world's emerging markets. As a result, the Asian crisis now poses very immediate economic and financial challenges for many economies in the Asia-Pacific region, and has prompted a long-term change in global perceptions of financial and investment risk pertaining to emerging markets as a whole. Both those immediate challenges and the changes in risk perceptions undoubtedly apply to the four GMS countries.

We are pleased to present the twenty-sixth issue of Southeast Asian Affairs, a comprehensive annual review of the political and economic trends and developments in Southeast Asia.

Designed to be easily readable yet in-depth, informative and analytical, the annual has come to be a standard reference for scholars, policy-makers, private sector executives, and journalists who seek to understand and keep up to date on the dynamics of Southeast Asian developments.

The regional economic crisis was the most important development of 1998, overshadowing everything else. Growth rates plummeted, and Indonesia, Thailand, and Malaysia experienced deep recessions. There was also significant political fall-out in Indonesia and Malaysia. Although signs of recovery appeared towards the end of 1998, it seemed to be patchy and hedged by uncertainties. And there is no early end in sight to the political uncertainty in Indonesia.

I take this opportunity to thank the authors who have contributed to this publication. While the Institute encourages the statement of all points of view in the publication, the authors alone are responsible for the facts and opinions expressed in their articles. Their contributions and interpretations do not necessarily reflect the views of the Institute.

We are pleased to present the twenty-fifth issue of Southeast Asian Affairs, a comprehensive annual report on the political and economic trends and developments in Southeast Asia.

Designed to be easily readable yet in-depth, informative and analytical, the annual has come to be a standard reference for scholars, policy-makers, private sector executives and journalists, who seek to understand and keep up to date on the dynamics of Southeast Asian developments.

Completing ASEAN's historic task of uniting all countries in Southeast Asia was the initial problem addressed by regional leaders in 1997, an objective frustrated at the eleventh hour by the renewal of armed violence in Cambodia. The civil war in Cambodia, and other consequences of enlargement, continued to engage ASEAN, but quickly subsided in importance following the devaluation of the Thai baht on 2 July, which triggered the regional financial crisis. These events, together with the smoke-haze problem and the El Nino–induced drought, dampened celebration of ASEAN's 30th anniversary. Apart from Cambodia, domestic politics generally remained stable. Governing parties were returned in elections in Singapore and Indonesia, and a change of government in Thailand followed the prescribed democratic process. By year end, however, the economic and social effects of the financial crisis were also pressuring regional governments.

I take this opportunity to thank all the authors who have contributed much to make this publication possible. While the Institute encourages the statement of all points of view in the publication, the authors alone are responsible for the facts and opinions expressed in their articles. Their contributions and interpretations do not necessarily reflect the views of the Institute.

In 1997, while the Association of Southeast Asian Nations (ASEAN) proudly looked back at its past thirty years of accomplishment in forging regional peace and security, vibrant economic growth, and higher levels of social welfare, a new issue — economic security — confronted the grouping's economies. Rapid growth of over 7 per cent per annum achieved during the past decade, which made ASEAN one of the fastest-growing regions in the world, came to a crashing end because of the financial crisis that hit the region in the second half of the year. ASEAN's economic growth in 1998 is predicted to be the lowest in the last three decades.

However, the factors that contributed to rapid economic expansion in ASEAN countries remain strong, and have the potential to return the region's economies back to a sustainable growth path. ASEAN continues to enjoy, for example, high levels of saving, a strong work ethic, low underlying inflation rates, and a dynamic and entrepreneurial private sector.

In previous instances of economic slow-downs in the 1980s and 1990s, each ASEAN country was able to come out relatively unscathed after the restructuring of their industrial sectors. Since then, the region's rapid economic growth, particularly in the real sector, has resulted in strong demand for capital to finance economic development. This led to large inflows of both long and short-term capital into the region. The development of strong financial institutions both at the regional level and for each ASEAN member country is of crucial importance in order to cope with such large inflows. The adjustment to the present crisis will therefore be different from previous ones. The crisis is a region-wide phenomenon and calls for a regional solution. It also involves private debts for which the role of the private sector would be crucial.

ASEAN Economies Up to the 1990s: An Overview

To understand the financial turmoil it is necessary to begin by looking at macroeconomic developments in the region up to the middle of 1997. The sound macroeconomic fundamentals of ASEAN countries defied any suspicion of the dramatic collapse of exchange rates that began in July 1997.

Most writings on Brunei's development have been by non-locals. The focus of these writers is development in terms of the physical and the tangible. The development paradigm from a Bruneian perception is somewhat different. In addition to the conventional meaning of development, emphasis is also put on values such as peace and tranquillity. Brunei Darussalam develops within the ambit of Islamic tenets. This article discusses the economic as well as sociopolitical development process of Brunei Darussalam from an insider's perspective. Both physical and non-physical development are addressed in the discussion.

Development from a Bruneian Perspective

Even Western scholars recognize that the concept of development has several connotations. Traditionally, the term “development” implies not only increases in total output, labour, capital, trade, and so on, but also an improvement in income distribution and the eradication of poverty. It also includes changes in attitudes and institutions which accompany and produce economic growth, but are ignored in the measurement of gross national product. Increasingly, other elements desired in development include non-measurables such as culture, values, and freedom.

Brunei has managed to retain its traditional values, customs, and monarchial system throughout the process of development. From a Bruneian perspective, “development” accords with the broad form mentioned above. Factors such as culture, values, and religion are given importance in Brunei's development strategy.

In particular, Brunei's development policies are based on Islamic principles. Islam is the official religion, and has been the state religion since the first ruler. It is the central state philosophy, and has been incorporated in the educational policy as well as administrative functions of the government.3 His Majesty the Sultan proclaimed the country's ideological goal on the eve of independence as follows:

The Concept and Practice of National Security

In the Philippines, the concept of national security has traditionally been understood primarily in terms of defence against internal challenges to the government and political system. Notwithstanding the ravages the country suffered directly as a result of external aggression during the Pacific War, the defence establishment trained the bulk of its efforts against internal problems. These were the communist rebellion since the 1950s, Muslim secessionism in the 1970s to the present, and — for a brief period during the post-Marcos transition — rightist coup plotters among the military's own ranks.

The responsibility for defence against external threats during the post-WWII and Cold War periods was entrusted to the United States, which from 1951 had maintained a Mutual Defense Treaty (MDT) with the Philippines. The United States kept a huge military presence at Clark Air Base and Subic Naval Base in Luzon. The MDT and the presence of American bases were deemed sufficient deterrence against a revival of Japanese military adventurism, or similar expansive aspirations attributed at the time to the Soviet Union, China, or communist Indochina. Philippine participation in the Southeast Asia Treaty Organization (SEATO; 1954–77) likewise demonstrated the staunchly pro-U.S., anti-communist stance of the country at that time.

Meanwhile the domestic communist and Muslim rebellions thrived, rooted as they were in poverty, perceptions of social injustice, and political repression. The failure of successive governments to resolve these challenges through purely military means contributed to the evolution of a “total” or “comprehensive” approach to counter-insurgency. The new approach relied increasingly on community-based civic action and economic development programmes to address the causes rather than merely the symptoms of discontent. Simultaneously, however, counter-insurgency operations by the Armed Forces of the Philippines continued to be based on attrition warfare, thus taking a huge toll on lives and property.

A conjunction of watershed developments from the fall of President Marcos in 1986 helped drastically change both the internal and external security environments of the country.

Cambodia's seemingly limitless capacity for implosive self-destructiveness reached an unexpected level in mid-1997. Whatever “new glimpse of hope” that may have been proffered by measured momentum in 1996 was dashed by escalating tension within the coalition government in Phnom Penh, which culminated in the bloody confrontation of the weekend of 5 July between Hun Sen forces of the Cambodian People's Party (CPP) and its royalist rival, Prince Norodom Ranariddh's FUNCINPEC. What surprised most observers was not the coup itself, which many had foreseen in the making, but rather the brutality with which it was conducted. In the wake of torture, summary executions and custodial deaths, unlawful mass arrests, detention, and intimidation of political opposition, Cambodia witnessed a return to state-sponsored violence and de facto single-party autocracy in absolute defiance of the spirit of the U.N.-brokered Paris Accords to which all parties were signatories. In fundamental aspects, Cambodia once again found itself in a similar predicament to the 1980s — plagued by resurgent insurgency, without an effective opposition, ruled by force rather than law, its economy battered, its population displaced both internally and across the border, facing international sanction, and with rival factions contesting diplomatic representation at the United Nations. In effect, the weekend campaign and ensuing developments reversed many of the positive steps that had heretofore been achieved, further underscoring the fragility of the political arrangement that emerged from the Accords and U.N.-sponsored election of 1993. At year's end, the ultimate scope and extent of the impact of the coup was still being assessed. The ramifications, however, are undeniably grave and multi-dimensional, both in the immediate and medium terms.

Anatomy of a Coup

Tension within the coalition government in Phnom Penh had been apparent since its inception after the national election in 1993. While coalitions in general are by no means easy political arrangements, even under the best of circumstances, the Cambodian experience was exacerbated by the fact that this forced partnership resulted not from popular electoral expression but from the hijacking of nascent democracy by prevailing politico-military realities in Cambodia.