How both domestic politics and great power competition will shape Asean’s fortunes in 2016

Simon Tay says 2015 was a challenging time for Southeast Asia, but a better integrated and more united Asean can play a central role in the wider region

PUBLISHED : Friday, 01 January, 2016, 12:31pm
UPDATED : Friday, 01 January, 2016, 12:31pm

Many turbulent events of the past year are symptoms of a world lacking optimism and growth, and facing possible change in the global order. Even as social and economic uncertainties continue, major power competition and contention grow, especially between the US and China.

There is not much that smaller countries can do to directly change these tectonic trends. There is every danger, instead, that countries in Southeast Asia, in particular, will face great pressures amid the increasing push and pull among the great powers.

Yet they are not blank pieces of paper on which a great power can write at will. There are domestic politics that matter, and these will be clearly evident in the year ahead in a number of key countries. Consider Indonesia and Thailand, the region’s two largest economies, and Myanmar, which has emerged as a promising “frontier” market.

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Indonesia must hope the year ahead will be better. While economic growth has remained at 4-plus per cent, it has slowed, and the nation’s macroeconomics remain relatively weak, as reflected in the rupiah. Given the flat-to-poor outlook for the resource sector, moving ahead with infrastructure and industrialisation is key to growth and job creation.

Yet political signals have been less than positive. The popularly elected president, Joko Widodo, has struggled to lead effectively, facing opposition as well as a party of different factions. Worse, increasingly assertive and narrow nationalistic voices are putting off many potential foreign investors.

The fires and haze pollution – and 2015 was one of the worst fire seasons ever – are an emblem of further problems. It is estimated that Indonesia has lost some US$22 billion in economic production and health care, while millions of people have suffered in the provinces, both in Indonesia and in neighbouring countries. As the fires release heavy loads of climate change gases into the atmosphere, negative international attention will also grow unless the issue is effectively addressed in the year ahead.

Thailand, the region’s second-largest economy, also had a poor 2015. The military coup was at first cheered domestically for ending months of stalemate. But, since then, only very limited signs of progress have been seen and the economy has slowed markedly. Production costs have risen as the pressure of external sanctions and criticism have increased, especially from its erstwhile ally the US.

With slower growth, the trend is for narrow nationalism to seek to preserve markets for the locals, rather than integrating with neighbours

The Prayuth government must be seen to move ahead effectively, beyond patching problems, to steer the country towards newer paths. Thailand’s manufacturing capability and infrastructure need to be strengthened and new growth sectors must be pushed. If the government cedes to elections within the year, as some speculate, this political transition will further complicate the outlook.

In comparison, Myanmar had a good year, capping a remarkable transition to democracy with an overwhelming general election victory for the National League for Democracy. Questions, however, follow this result and the year ahead will show whether the new government can effectively make the transition from opposition, especially as constitutional provisions prevent iconic Aung San Suu Kyi from serving as president and an acceptable nominee must be proposed.

Despite the electoral mandate, an accommodation with the military is still needed. They remain in parliament and run ministries key to security and to any settlement with warring ethnic minorities in border areas.

Growth for Myanmar was in the region of 8 per cent for the past year, albeit from a low base. Further progress will require not only the right promises and policies; increasingly, the question will be about the capacity and ability to deliver on economic reforms. Many challenges remain, especially with infrastructure and the financial system.

On top of such national issues, there are regional dynamics in play. At the end of 2015, the Asean Community was inaugurated. The ambitions are to move further ahead to integrate economically, cooperate more closely on politics and security, and increase social and cultural understanding among the 10 diverse countries of the group.

National priorities will drive regional ones, rather than the other way around. With slower growth, the trend is for narrow nationalism to seek to preserve markets for the locals, rather than integrating with neighbours. On top of economic flows, the movement of people beyond borders is also proving sensitive, especially amid allegations of mistreatment and human trafficking.

Sino-Japanese competition need not be negative from the perspective of Asean countries

However, if the Association of Southeast Asian Nations can integrate better and become more united, the group can play a central role in the wider region that is accepted by the major powers. An integrated Asean market with some 600 million consumers can also be competitive and offer considerable opportunities.

Two non-Asean countries will continue to play key roles in the region’s economy: Japan and China. Japan has traditionally been the key economic partner and has been resurgent with optimism from the effort of Abenomics to revitalise the economy. China trade is however now dominant in the region, and further waves of infrastructure and other investment are expected with the creation of the Asian Infrastructure Investment Bank and President Xi Jinping’s (習近平) vision of “One Belt, One Road”.

Engaging with China and Japan as the two largest economies in the region can serve Asean well. Note, however, that signs of Sino-Japanese competition are surfacing, most visibly over plans to build railways in Indonesia, Thailand, and between Malaysia and Singapore.

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Such competition need not be negative from the perspective of these and other Asean countries. Positive competition can lead to better projects on the best possible terms so that the region is better connected, with a foundation for closer integration. Overall relations with both China and Japan can prosper, rather than seeing things as a win-lose, negative competition.

There is, however, a need to manage the politics and processes so that national and Asean-centred priorities are emphasised, and the best choices made. Otherwise, donor-driven agendas might be ill-fitting, and other concerns will arise about unequal power relations and corruption.

The world is experiencing increasing US-China and Sino-Japanese competition, and this is visible in the region. Yet, despite and even because of the lack of settled order, there is a swirl of dynamics and potential opportunities.

Asean growth, as a group, continues to perform better than the global average. For Asean countries, a key to ensure progress is to deal with national priorities while increasing unity and cooperation, and remaining central to the wider region.

Simon Tay is chairman of the Singapore Institute of International Affairs, an independent think tank, and associate professor of the National University of Singapore Law School