APEC, East Timor and the New Asian Reality

(Republished by Scoop with the kind permission of Stratfor.com)

STRATFOR.COM
Global Intelligence Update
Weekly Analysis September 13, 1999
APEC, East Timor and the New Asian Reality

Summary:

The Asia Pacific Economic Forum (APEC) had more important things than economics on the table. Peacekeeping for East Timor, the stability of Indonesia and security for critical sea lanes, the China-Taiwan crisis and North Korea missile tests are all key issues. Economics haven't disappeared, but they have been overshadowed by politico-military issues.

The stunning fact is that where Africa has the Organization of African Unity, Asia has no regional security framework. Asia fantasized that they would never need one, that perpetual economic growth would keep politico-military uncertainty at bay. Asia has hit reality at APEC. Asia is a normal part of the world. The only number Asia used to care about was the growth rate. Now APEC has to focus on another number: the casualty rate.

Analysis:

What was important in the world of 1989 was economic growth. Communism was collapsing everywhere, bringing geopolitics down with it. The old issues of the Cold War - the balance of power, nuclear throw-weight, strategic choke points - had become archaic.

The new and vital issues were structural trade impediments, the competitiveness of American businesses and the unique efficiencies of Asian economies. APEC had the word economic in it because it was assumed that economic issues had supplanted geopolitical issues on a permanent basis. Economics was what was important in the world.

What was going on in the world derived from what was important. The United States had massive military power. Asia had concentrated, massive economic power. It was assumed that this power was not based on either cyclical forces or temporary contrivances, but rather was rooted in fundamental dimensions of Asian culture. The Asians were simply more disciplined, faster learners, with better organized work places and so on.

Thus, the Asian savings rate was not rooted in the fact that workers retiring in Asia at the time had to depend on their own resources. Rather the savings rate was rooted in deeply Asian, indeed Confucian cultural values that elevated abstinence and hard work in contrast to American values that elevated self-indulgence and leisure.

The Asia Pacific Economic Forum was organized according to the principle that where America was the politico-military center of gravity in the international system, Asia had become the economic center. Still, as the repository of the post-Cold War's politico- military power, the United States continued to have a vital, if poorly defined role in maintaining Asian stability. There were lingering problems in places like North Korea where U.S. politico- military engagement was needed. Asia was not completely conflict- free, despite its self-perceived destiny of becoming the economic heartland of the 21st Century.

APEC was created to manage the economic relationships that were to be at the center of the Pacific century. APEC had no military function. Indeed, since the disappearance of the South East Asia Treaty Organization (SEATO) as a meaningful entity in the course of the American defeat in Vietnam, Asia has not had any multilateral military entity comparable to those in Europe. The Association of South East Asia Nations (ASEAN) also carries out a primarily economic function, with some political elements. There is no formal military entity designed to manage Asia's crises, save the bilateral relationships developed between Asian countries and the United States. Even the American, Australian, New Zealand entity (ANZUS) has disappeared. There is no multilateral forum in which to even discuss politico-military issues.

The reason is simple: Asia has engaged in a generation-long fantasy in two parts. Part one: Asia's economic success was due to the unique virtues of Asian culture and was therefore immune to the rules of economics. Part two: since the business cycle had been abolished, prosperity was now permanent and politico-military conflict could not occur in such an environment. From New Zealand (if we may extend the borders of Asia a bit) to Japan, the basic fantasy has been that Asia has economic disputes. It does not have military conflicts.

The 1999 meeting of APEC then becomes fascinating. The economic issues on the table are few and trivial. The politico-issues are many and of desperate importance.

There are a few real economic issues on the table. The lamb issue between Australia, New Zealand and the United States matters a great deal to the first two, but the history of the region doesn't turn on it. There are also the traditional issues. U.S. demand for access to Asian markets is still present, but it is not clear whether the Asian markets are really worth being demanded. In the context of the U.S. economic boom, it is an issue from which the venom has disappeared.

Then there is the question of Chinese membership in the World Trade Organization (WTO). This issue once mattered. Only habit and symbolism have kept it on the table today. Membership in the WTO was a symbolic affirmation of China's entry into the international capitalist order. China wanted it because it would increase the perceived security and safety of investors in China. The United States was using WTO membership as a lever to open Chinese markets and guarantee intellectual property rights. All of these were quite important under the original framework of assumptions behind APEC.

Today, they are as irrelevant as the Congress of Vienna. Investors are not avoiding China because of symbolic issues. They are avoiding China because the economy is in terrible shape. Opening Chinese markets to American goods while Chinese consumers are refusing to spend money really doesn't matter. The entire issue has shifted because the objective foundations on which it once rested have shifted.

What has dominated APEC this year was not an economic issue, but a political and military issue: East Timor. They focused on East Timor because the failure of the Asian economic dream has left Indonesia in near chaos. APEC, which thought it would never have to deal with such issues, has been left as the only multinational forum able to address the question of what do about East Timor.

For the moment at least, the economic forum has been made to serve as a politico-military forum. The outcome: Indonesia appears to have agreed that a multilateral force be permitted into East Timor. Australia has taken the lead in creating such a force, with the United States quietly pulling strings in the background.

Apart from the tragedy to the inhabitants, East Timor means little strategically. It has, however, posed a radical new challenge for Asia. The need for intervention in East Timor and the refusal of the United States to take the lead role has forced APEC attendees to address a unfamiliar question: what sort of multilateral security force does Asia need in order to handle issues like Timor?

Asia is not Europe. Asia has no NATO. Asia does have a China whose relation to any such grouping is ambiguous. Asia also has a Japan, which lags behind Germany in its willingness to accept international responsibility. Thus, the leader has become Australia, barely part of Asia and certainly not one of the dominant Asian powers.

There is a second issue behind East Timor, which is Indonesia itself. The collapse of Indonesia into chaos has grave strategic significance. The sea lanes that can be interdicted from Indonesia are the lifelines of Asia, with oil flowing one way and goods the other. If Indonesia as a whole follows East Timor into chaos, someone will have to impose sufficient order to assure sea lane controls.

However, the issue goes much deeper than just sea lanes, particularly for Japan, which relies on mineral exports from Indonesia. Who would take responsibility for protecting Japanese interests should Indonesia collapse into chaos? Behind all of the discussions on East Timor, the specter of Indonesian chaos haunts East Asia.

In the background, there was the usual discussion of trade, currencies, recovery and the rest. But the basic conversation was about wars and threats of war, insurrection, interventions, armed forces and other things that the founders of APEC thought they had banished along with the business cycle. After all, Indonesia was not the only strategic issue on APEC minds. Defusing the China- Taiwan crisis was on the table. The problems on the Korean peninsula were also on there, as was the U.S. role in the region and the reemergence of Australia as an Asian politico-military force.

Asia has become a very normal place again. It looks like it did before the Asian economic miracle began and very much like the rest of the world - the world that didn't enjoy a miracle - has always looked. Asia's trouble is not that it has politico-military problems - who doesn't? The trouble is that Asia doesn't have systems to deal with these problems. Even Africa has the Organization of African Unity, which has mechanisms in place for raising and deploying peace keeping forces. Asia has no equivalent. It has abundant multilateral economic organizations but no politico-military entities.

Behind the institutional vacuum is a psychological reality. Asia is utterly stunned by what has happened to it. The underlying belief is that the last couple of years were an aberration, and that soon, everything will go back to the normal state of amazing growth.

Given this mentality, Asia has not prepared itself for the logical consequences of its economic disaster. These consequences are political and military. Indonesia is the first and perhaps most extreme case of what happens when irrational economic expectation encounters reality. Throughout Asia, the economic downturn has resulted in domestic political friction and international tension. This is normal.

The problem is that Asia has not yet accepted that the last generation was an aberration and therefore, Asia has not thought through what the region will look like in a more subdued environment. The operative word is "normal."

Normal means that some Asian nations will develop while others stagnate and still others decline. There will be periods of growth and periods of contraction. In short, Asia will behave like a normal region, with different countries going in different directions. The Asian fantasy of an ever expanding economic pie has been exploded. That does not mean that the world has come to an end. It simply means that the Asian world will resemble the rest of the world.

Asia, like any other region, has more to worry about than currency controls and trade issues. It has to worry about insurrections, collapsing strategic nations, and great power conflicts. It has to worry about building navies and air forces, recruiting armies and forming military alliances. In other words, APEC has to define the term Asia Pacific geographically, remove the limiting term "Economic" and explain what it means by Forum.

All of this will be hard, not because it is beyond Asia's reach, but because the act of turning APEC into some sort of regional security system will force Asia to face the truth: Asia's miracle is over. It has become normal again. Normality is painful in a world of economic difficulty.

During the 1980s and much of the 1990s, the news of Asia was delivered on the business pages of the newspaper. In the next decade, Asia's news, like that of other continents, will be told on the front pages. It will include not only profits and losses, but also reports of dead and wounded.

If Asia does not rise to this challenge - and it may not - the United States will step in, with reluctance. Australia played that role in East Timor, but the lack of an Asian solution to Indonesia will certainly create a vacuum that the United States will fill.

Now, if the United States fills the vacuum, it is inevitable that Asia will be caught between two poles. On the one side, there will be the Sino-Russian bloc. The Americans will be on the other. In between, from Tokyo to Singapore, all will be in very difficult positions. This is the most likely course. Asia is unlikely to have the political stamina to create Asian entities to deal with Asian crises.

The creation of a security structure would normally depend on the region's leading power. Japan was said to be the key to Asia's economic crisis. It is even more the key to Asia's politico- military crisis. However, Japan continues to contain its economic crisis without solving it, postponing internal political realignment and a redefinition of its international role.

Japan has frozen its position. Underneath that freeze is a ticking time-bomb - a banking system unable to solve its core problems. Eventually that bomb will go off and the immobility of Japan's political system will be shattered. That will probably take several years. During that time, the new Asian blocs will be formed and Asia will again find itself trapped between great powers.

The Auckland meeting of APEC has given Asia a sense of reality. Attending countries put on a show of indecision. That pretty much sums up where we are.

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