Regional outlook : Southeast Asia 2006-2007.

161 Pages·2006·5.813 MB·English

REGIONAL
OUTLOOK
Southeast Asia
2006–2007

The Institute of Southeast Asian Studies (ISEAS) was established as an
autonomous organization in 1968. It is a regional research centre for scholars and
other specialists concerned with modern Southeast Asia, particularly the many-
faceted problems of stability and security, economic development, and political
and social change. The Institute’s research programmes are the Regional Economic
Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies
(RSPS), and Regional Social and Cultural Studies (RSCS).
ISEAS Publications, an established academic press, has issued more than
1,000 books and journals. It is the largest scholarly publisher of research about
Southeast Asia from within the region. ISEAS Publications works with many other
academic and trade publishers and distributors to disseminate important research
and analyses from and about Southeast Asia to the rest of the world.
REGIONAL OUTLOOK
Southeast Asia 2006–2007
Editorial Committee
Chairperson
K. Kesavapany
Editors
Russell H.K. Heng
Rahul Sen
Production Editor
Tan Kim Keow

Southeast Asia
2006–2007
INSTITUTE OF SOUTHEAST ASIAN STUDIES

First published in Singapore in 2006 by
Institute of Southeast Asian Studies
30 Heng Mui Keng Terrace
Pasir Panjang Road
Singapore 119614
Internet e-mail: [email protected]
World Wide Web: http://bookshop.iseas.edu.sg
All rights reserved. No part of this publication may be reproduced, translated,
stored in a retrieval system, or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior consent of
the Institute of Southeast Asian Studies.
© 2006 Institute of Southeast Asian Studies, Singapore
The responsibility for facts and opinions expressed in this publication rests exclusively
with the contributors and their interpretations do not necessarily reflect the views or
the policy of the Institute, or its supporters.
ISEAS Library Cataloguing-in-Publication Data
Regional outlook: Southeast Asia.
1992–1993–
Annual
1. Asia, Southeastern.
DS501 S720 1992 sls91-209988
ISSN 0218-3056
ISBN 981-230-370-7
Typeset by International Typesetters Pte. Ltd.
Printed in Singapore by Seng Lee Press Pte. Ltd.
v
contents
Preface vii
K. Kesavapany
Introduction ix
Russell H.K. Heng and Rahul Sen
PoLItIcAL oUtLooK
The Asian Security Environment 3
■ Terrorism in the Region: Changing Alliances,
New Directions 8
■ The Threat of Maritime Terrorism and Piracy 12
■ The Inaugural East Asian Summit: The First Step
in a Long Journey 16
The ASEAN-10 19
Brunei Darussalam 19
Cambodia 23
Indonesia 27
Laos 32
Malaysia 36
Myanmar 40
Philippines 45
Singapore 49
Thailand 53
Vietnam 57
v
v coNTENTS
econoMIc oUtLooK
Regional Economic Trends 65
■ The Future for Asia’s Low-Cost Carriers 74
■ The End of Textile Quotas: Implications for ASEAN
Economies 77
■ An Overview of Foreign Direct Investment Legal
Rudiments in ASEAN 81
The ASEAN-10 85
Brunei Darussalam 85
Cambodia 88
Indonesia 94
Laos 99
Malaysia 105
Myanmar 111
Philippines 121
■ Competition Drives Growth: The Liberalized
Telecommunications Sector in the Philippines 122
Singapore 129
Thailand 134
Vietnam 140
Selected Sources of Data 145
The contributors 147
v
PrefAce
Regional Outlook offers a succinct analysis of political and economic
trends in Southeast Asian countries and their prospects for the
forthcoming two years. Scholarly, yet written in an accessible style, it
is designed for the busy executive, professional, diplomat, journalist,
and interested observer. This annual publication, which the Institute
launched in 1992, has built up a loyal following of readers in Singapore
and beyond.
Last year’s Regional Outlook warned that terrorism in the region
would not recede any time soon. The attacks on Bali on 1 October
2005 underlined the continuing deadliness of this threat. Southern
Thailand is another site of the destabilizing effects of terrorism. The
terrorist attacks there not only eroded Thailand’s sense of domestic
security but also affected bilateral relations between Thailand and
Malaysia. Apart from terrorism, the member states of the Association
of Southeast Asian Nations (ASEAN) have had to contend with various
natural disasters. The Boxing Day tsunami of 2004 is etched deeply
into regional memory. The looming possibility of the avian influenza
turning into a pandemic is an issue that calls for the closest regional
and global cooperation. On the bright side, an East Asian Summit
spearheaded by ASEAN and scheduled for December 2005 is the first
step towards an integrated Asian community. However, any realistic
appraisal needs to acknowledge hurdles ahead. Just five years into the
new millennium, Asia’s many challenges are clear.
On the economic front, a moderate economic slowdown is expected
in Southeast Asia over the next two years. The main risks that could
affect the region’s economic outlook in 2006–2007 are high oil prices,
China’s overheating economy, the possibility of an avian flu pandemic,
and rising global imbalances because of the financing of the US cur-
v
v pREfAcE
rent account deficits by excess savings in East Asia. Sustained high oil
prices, in particular, are a major risk to regional economic growth. If
oil prices continue to rise, inflationary pressure will persist, eroding
business and consumer confidence in the region. In August and Sep-
tember 2005, hurricanes Katrina and Rita swept through the Gulf coast
of the United States, disrupting global oil production and causing oil
prices to shoot up sharply. Although the tsunami that hit the coastlines
of many countries in South Asia and Southeast Asia in 2004 appears
to have had limited macroeconomic impact on Southeast Asia, the
nature of the devastation wrought may have serious repercussions on
longer-term regional development. This is because the damage caused
by the tsunami largely has been confined to the rural rather than the
industrial areas of affected countries.
While ASEAN continues to grapple with speeding up economic
integration, it took an important step with the Vientiane Action Pro-
gramme released at the 10th ASEAN Summit in November 2004. This
step forward is to have an ASEAN Charter to strengthen the grouping
and give it a legal standing. The Charter will lay the foundation of
a more rule-based and legal institutional structure for ASEAN. The
Charter could also provide the means to expedite regional economic
integration, particularly through transforming the region into an ASEAN
Economic Community by 2020. However, what shape the Charter
takes finally and whether it facilitates regional economic integration
remain to be seen.
Regional Outlook 2006–2007 will walk you briskly through the
problems faced by the region collectively and the particular problems
facing its member states. The editors, Russell H.K. Heng and Rahul
Sen, have brought in new writers to provide fresh perspectives on
emerging regional trends and issues. For this, I wish to thank all the
contributors and the two editors.
K. Kesavapany
Director
Institute of Southeast Asian Studies
15 November 2005
IntrodUctIon
As is the long-standing pattern in the ASEAN region, politics in some
of its member countries are rambunctious and unpredictable while in
others, nobody is expecting any significant change. This picture emerges
in the ten country reports on politics.
In the Philippines, President Gloria Macapagal-Arroyo is fending off
calls to impeach her. In Thailand, Prime Minister Thaksin Shinawatra,
having won an impressive election victory in early 2005, is fast los-
ing his hallmark lustre as an effective leader by the end of the year
because of his failure to come to grips with the violent religious/ethnic
problems in the country’s deep south. Indonesia’s President Susilo
Bambang Yudhoyono, one year into his term, gets a mixed report
card, which is perhaps what any Indonesian president can realistically
expect given the complexities of the country’s problems. That is to
say this President is not doing too badly. The new prime ministers
of Malaysia and Singapore, two places where politics are rather more
placid, are busy reinventing their respective country. Nobody expects
the unexpected here. The even quieter sultanate of Brunei is actually
experimenting with some rather bold political initiatives. These are
exciting times for the country; however, very few seem to be curious
about the Bruneians.
Among the new ASEAN members, Vietnam is having its Com-
munist Party Congress in 2006 and so is Laos. But the opacity of their
politics perhaps hides no more than intra-elite squabbles over how to
share power and the perks that come with power. Despite pundits
pointing to reformists versus conservatives rifts, the leaders of these
countries probably enjoy a stronger consensus than given credit for.
That consensus is for the country and themselves to get rich quick.
 iNTRoDucTioN
Given this mindset, development-friendly policies and politics are safely
guaranteed for quite a while in these places. Cambodia continues to
muddle through and the military regime in Myanmar remains in its
political bunker while sorting out how to retain power, give some space
to the opposition, and get round international pressure.
Southeast Asia continues to face intra-regional problems that have
no solutions in sight. The most dramatic of these would be that of
terrorism. Terrorism struck a second blow at Bali on 1 October 2005.
In South Thailand, terrorism committed in the name of Islam is going
to get worse before it gets better. So far, all terrorist attacks in the
region are land-based but shipping in the Straits of Malacca so vital
to global trade can also be a tempting target. This issue of Regional
Outlook has two thematic articles on the challenge of terrorism on
land and at sea.
At year-end in 2005, ASEAN leaders will meet the leaders of some
dialogue partners in a historic East Asia Summit. Expanding regional
cooperation beyond ASEAN is a necessity given the way global political
and economic powers are being reconfigured. But integrating the very
different member states of ASEAN into a more effective community
has never been easy, let alone forging a bigger Asian community. A
thematic article in the Political Outlook section takes a hard look at
how far an East Asian Summit can go.
External macroeconomic shocks such as rising oil prices, China’s
overheating economy, the possibility of a bird flu pandemic and rising
global imbalances due to the financing of US current account deficits
through excess savings in East Asia continue to remain major risk fac-
tors for the ASEAN economies. Continued high oil prices, in particular,
have clearly dampened economic growth in the region, except for the
oil-rich sultanate of Brunei. Oil dependent countries such as Singapore,
Thailand and the Philippines have been particularly vulnerable. Indo-
nesia was also badly affected as its huge fuel subsidies were causing
severe downward pressure on the rupiah. Nevertheless, the country’s
currency has begun to stabilize with significant hikes in domestic
gasoline and diesel prices imposed by the Indonesian government.