ASIA PACIFIC SECURITY OUTLOOK 1998 edited by Charles E. Morrison an apap project The cosponsors of this project wish to thank A ASIA PACIFIC SECURITY OUTLOOK 1998 edited by Charles E. Morrison cosponsored by ASEAN Institutes for Strategic and International Studies East-West Center Japan Center for International Exchange an apap project J Tokyo • Japan Center for International Exchange • New York Copyright © 1998 Japan Center for International Exchange All rights reserved. The surnames of the authors and other persons mentioned in this book are positioned according to country practice. Copyediting by Pamela J. Noda. Cover and typographic design by Becky Davis, EDS Inc., Editorial & Design Services. Typesetting and production by EDS Inc. Printed in Japan. ISBN 4-88907-015-x Distributed worldwide outside Japan by Brookings Institution Press, 1775 Massachusetts Avenue, N.W., Washington, D.C. 20036-2188 U.S.A. Japan Center for International Exchange 9-7 Minami Azabu 4-chome, Minato-ku, Tokyo 106-0047 Japan URL: http://www.jcie.or.jp Japan Center for International Exchange, Inc. (JCIE/USA) 1251 Avenue of the Americas, New York, N.Y. 10020 U.S.A. Contents Foreword 7 The Regional Overview 9 01. Australia 23 02. Canada 32 03. China 41 04. The European Union 50 05. Indonesia 58 06. Japan 65 07. Republic of Korea 77 08. Malaysia 86 09. New Zealand 92 10. Papua New Guinea 101 11. The Philippines 108 12. Russia 118 13. Singapore 129 14. Thailand 136 15. The United States 147 16. Vietnam 157 5 Foreword The Japan Center for International Exchange (JCIE) is pleased to be the principal sponsor of the Asia Pacific Security Outlook as a project within the Asia Pacific Agenda Program (APAP). JCIE intends that the Outlook, of which the 1998 edition is the second issue, be a regu- lar annual publication. We are grateful to our cosponsoring institu- tions, the ASEAN Institutes for Strategic and International Studies (ASEAN-ISIS) and the East-West Center, for their help in making this endeavor a success. Like other APAP activities, the Outlook provides a venue for spe- cialists from Asia Pacific to work together on important challenges facing the region. The Outlook seeks to contribute to the search for a new regional security order by monitoring changing perceptions of the security environment, national defense doctrines and issues, and con- tributions to regional and global security. We hope that this monitor- ing as well as the vigorous discussions and debate among the members of the Outlook analytical team will contribute to building a broader basis of understanding of each country’s sensitivities as well as en- gendering a more realistic assessment of the prospects and challenges of building a new security order. The Outlook team has multinational leadership and authorship from Asia Pacific itself. Its three directors are Charles E. Morrison (U.S.A.), Nishihara Masashi (Japan), and Jusuf Wanandi (Indonesia). The bulk of the work, however, falls on a team of security analysts from 16 countries, many of them younger specialists, each of whom wrote a background paper on his or her own country. In November 1997, these analysts came together at JCIE with the three project di- rectors and other invited analysts to review and critique each other’s 7 8 foreword papers and to discuss regional security issues in general. This discus- sion and a questionnaire filled out by the analysts help to inform the regional overview. The Outlook is keyed to the ASEAN Regional Forum (ARF), a dia- logue process initiated by the Association of Southeast Asian Nations in 1994. The countries covered in the Outlook are members of ARF, although the Outlook does not now cover all members. We regard the Outlook as a work in progress; over time, the coverage of issues and countries will expand and deepen. JCIE is grateful to APAP and the Nippon Foundation for financial support of the Asia Pacific Security Outlook 1998. We also want to acknowledge the important role played by the Center for Global Part- nership in sponsoring Asia Pacific Security Outlook 1997, which was published by the East-West Center. The editor joins me in expressing our gratitude to Richard W. Baker of the East-West Center for assist- ance at all stages of the editing process and to Clara Joewono of the Centre for Strategic and International Studies in Indonesia for coordi- nating inputs among the ASEAN-ISIS members. Finally, I should note that JCIE seeks wide dissemination of the products associated with our program. Readers are invited to explore JCIE’s website at <http://www.jcie.or.jp> for more information on APAP and other JCIE programs. We also welcome your suggestions for improving future editions of the Asia Pacific Security Outlook. Yamamoto Tadashi President Japan Center for International Exchange The Regional Overview At the beginning of 1998, the Asia Pacific security outlook presented two contrasting faces. International political relations among the major states were never better, providing the basis for a relatively optimistic outlook. Yet the region’s worst economic crisis in decades threatened a traditional basis for security optimism: the Asian eco- nomic success story. The dimensions of the financial crisis were still unfolding at the be- ginning of 1998, making hazardous any predictions about their full scope, depth, and duration. Throughout the latter half of 1997, gov- ernments, international organizations, and most mainstream eco- nomic analysis had consistently underestimated the seriousness of the crisis. International bailout programs in Indonesia, South Korea, and Thailand, designed to impress domestic and foreign investors, had failed to restore confidence. The region’s governments increasingly concluded that even once market stability was achieved, the restora- tion of economic confidence and sound growth would come only after two, three, or even more years of substantial economic pain. The Financial Crisis as a Security Problem In the minds of the analysts associated with the Asia Pacific Security Outlook 1998, the financial crisis is a serious security concern and should be added to the previous year’s “watch list” issues: large power relations, the Korean peninsula, territorial disputes, and weapons procurement. It is frequently pointed out that many of the region’s macroeconomic fundamentals remain strong—high savings, low 9 10 the regional overview inflation, and balanced government budgets. If, on the one hand, the affected countries are able to make appropriate changes in policies or practices and the world markets for capital and goods remain open to them, the region may reemerge from the crisis with a sounder base for sustained growth than before. On the other hand, the crisis could continue to spread as the result of a combination of policy failures and contagion, adjustments may not be made, or international support in the form of long-term capital availability or market access may not be adequate. If prolonged, the sudden downturn in the region’s eco- nomic fortunes could have a devastating impact not only on individ- ual lives and fortunes—that is, on individual or human security—but also on national politics, regime stability, and international relations. Three possible impacts are considered here. Socioeconomic Discontent Threatening Domestic Stability. This is the greatest security challenge arising from the economic crisis. High growth in the past has increased expectations of economic perform- ance, particularly among the young, and progress came relatively easily as changes in global competitiveness and open world markets favored many Asian economies. But the promise of higher living stand- ards is now compromised as millions of East Asians face the loss of jobs and income. Unemployment and inflation rates are expected to rise steeply in 1998 to levels unprecedented in recent times in Indo- nesia, South Korea, and Thailand. The economic pain will increasingly affect the previously upwardly mobile middle and professional classes, key bases of political support in most Asian societies. Domestic po- litical leadership or even political systems, many of which base their legitimacy on economic performance, will come under increased pres- sure. The governments with more flexible political systems appear to be in a better position to shift policies. But even for those governments whose legitimacy is based in part on noneconomic factors such as popular election, a prolonged crisis may result in growing disenchant- ment with the political system and a corresponding nostalgia for strongman leadership associated with better or at least improving times, such as those of Park Chung-hee in South Korea or Sarit Thana- rit in Thailand. Increased Tensions in Relations within Asia. These could arise from a number of factors. Anxieties and nationalism may rise in states that have suffered relative declines in their positions compared with their neighbors. Weakened leaders or governments may be tempted to blame outsiders or look for outside diversions to deflect domestic the regional overview 11 criticism. Expulsions of foreign workers at a time of reduced oppor- tunities in their homelands could exacerbate tensions between host countries and sending countries. Internal ethnic tensions could spill over into international relationships or create waves of new refugees. Increased Tensions between Asian Countries and the United States. In Asia, such tensions could arise over U.S. support for painful In- ternational Monetary Fund (IMF) austerity measures or American purchases of Asian assets at bargain prices, affronting nationalistic sentiments. In the United States, increased Asian trade surpluses, an inevitable short- and medium-term consequence of the crisis, could re- sult in a severe backlash. Other sources of tension lie in Asian percep- tions of a lack of U.S. support, a problem that is particularly acute in Thailand, and even suspicions that the United States engineered or at least welcomed the crisis to cut Asia down to size.