Southeast Asia

ASEAN: War shakes fragile economies
By Arun Bhattacharjee

KUALA LUMPUR - Globe Silk Store, a landmark retail outlet on Jalan Tunku, is pulling down its shutters. For more than 40 years it has been known for top-quality service and reasonable prices. In the Malaysian capital's sprawling malls, business has slackened as much as 30 percent since last August. "Even our neighbors from Singapore are selling their investment in this country for liquidity," says Ng Lee Chon, a real-estate manager in Kuala Lumpur. He says he sold three of his uncles' flats at 40 percent less than the purchase price of five years ago.

The fear of a backlash by Islamic militants against the US-led invasion of Iraq has increased the economic uncertainties. Says a local leader of the fundamentalist Islamic party PAS, "We know Saddam Hussein is not a good leader but he is a Muslim, and we see this attack as a crusade against our religion." Many moderate people feel the same way, confirms Dr Chandra Muzaffar, a professor at Universiti Malaya and president of the International Movement for a Just World (Malaysia). Governments are worried about a swing toward the right, he explains.

This fear has led to large-scale preventive arrests in Southeast Asia. Malaysia arrested 61 people on Tuesday, and the next day 15 people suspected of being connected to the Malaysian militant group KPM were arrested in the north near the Thai border. A cache of arms including automatic M-16 rifles and machine-pistols were recovered. More arrests are likely. Singapore, Indonesia, Thailand and the Philippines made arrests earlier. The news of preventive arrests in Malaysia was broadcast only once before the government clampdown. None of the daily English-language newspapers carried the story. According to source in the Association of Southeast Asian Nations (ASEAN) liaison office, the number of arrests of suspected militants in the region has exceeded 20,000.

Most of these countries, especially Malaysia and Singapore, want to avoid militant violence for fear of the impact on their economies. Singapore imposed tight security regulations prior to the attack against Iraq. In spite of their differences and recent rhetoric, Malaysia and Singapore are working very closely in this regard, especially to protect their seaports.

All the ASEAN countries are braced for bad days ahead and losing hope of increased foreign direct investment (FDI) and bilateral aid. Senior ministers of Malaysia, Singapore, Thailand and Indonesia met on Malaysia's east coast early this month to discuss the security environment and economic fallout of the Iraq war.

The new members of ASEAN - Myanmar, Laos, Cambodia and Vietnam - are making a desperate effort to keep their economies afloat. Malaysia, which has fared better than others, announced on Monday the issue of new Islamic bonds worth US$3.27 billion to build the new capital Putrajaya and provide jobs. This is in addition to $2.4 billion raised a year ago.

More than 40,000 people lost their jobs in 2001-02 in the electronics industry in Penang. Nearly 50 others lost their jobs when a leading newspaper closed its office there. Restructuring of industries in Shah Alam and other belts released another 100,000 people between November 2001 and last month.

Lack of foreign investment is hurting the Multimedia Super Corridor (MSC), Malaysia's flagship technology center. Investment is no better in other areas. The Economic Advisory Group to the government revised twice Malaysia's growth projection for 2003 from 5 percent to 4.2 percent. The most recent projection, this month, is 3.8 percent.

Prices of almost all items have increased by an average 2 percent as of Thursday, which is not considered bad, but the maximum increase was in communication, transportation and in industrial products. To arrest price increases in export-oriented products, Malaysia announced a cut in natural-gas prices by 50 percent on Wednesday, which followed a recent 2 percent increase in petroleum prices.

To kick-start the economy Malaysia slashed interest rates and encouraged people to buy locally made cars to save the ailing automotive industry. This followed a similar attempt to provide very low-interest housing loans. Government bureaucrats were given interest-free housing and car loans from banks to keep the economy afloat. There is a growing fear that loans to a large number of non-government people may create non-performing assets for the banks.

Government economists here assure that the government is ready to provide the needed support to the banks. With national savings at 34.1 percent of gross national product (GNP), foreign reserves at $35.5 billion, and $13.78 billion in foreign trade surplus, the support may provide a temporary respite. However, the impact of a slipping dollar is another story.

The economic uncertainties are further overshadowed by the possibility of a backlash within the country by the militant Muslim factions. Malaysian government is waving a white flag to the fundamentalist opposition party PAS, saying that the country should have common stand on Iraq.

Across the Causeway, Singapore is in a far worse condition, with unemployment figures at an all-time high and the fear of Islamic retaliation because of its pro-US stance. Unlike Malaysia, the island's economy lacks both oil and agricultural resources. The frosty relationship with Malaysia over the supply of water from Johor Baru has been put on hold. Singapore has also alleged that some of the militants planning to blow up targets on the island came from Malaysia.

Thailand, meanwhile, has tightened security along its border with Malaysia, fearing incursion from Malaysia's PAS-dominated north and northeast to boost the brewing militancy in Thailand's Muslim-majority southern district. Since Malaysia crushed an attempted army revolt two years ago and made it clear that militancy within the country would not be tolerated, most Taliban- and Pakistan-trained extremists sought sanctuary among the sympathetic Islamic population in Thailand, the Philippines and Indonesia.

The Philippines has been fighting a separatist movement for the past 30 years, aggravated by Islamic militants from outside. The prompt expulsion of two Iraqi diplomats this week on charges of spying, after a call by the United States, did not go well with some of the Philippines' neighbors.

The Philippines is banking on its electronic industry and China for survival. The Philippines' export of electronic goods last year accounted for 64 percent. To maintain that level it increased imports of electronic components this year by 45 percent, worth $2.92 billion. Exports to the US and Japan hitting bottom, an increase in insurgency, and a $3.5 billion budget deficit are not encouraging. Economists feel that the economy in the Philippines is sliding out of control with unregulated imports of consumer goods and oil. Import of consumer goods import increased by 19 percent over last year and the oil bill increased 71 percent in 2001-02. On top of this, the peso is down and feared to slide further along with the US dollar.

Indonesia is faring no better in spite of its oil. A discernible fall in FDI, a deteriorating law-and-order situation and the image of sheltering terrorists are not helping. Its earlier image as a liberal Islamic country took a serious knock after the bombing of a nightclub in Bali.

"If the Iraq war continues for a month," says a Malaysian bureaucrat, "some of us will be in the deep sea and others [ASEAN countries] on rocking boats."

(©2003 Asia Times Online Co, Ltd. All rights reserved. Please contact for information on our sales and syndication policies.)
Mar 28, 2003

Indonesia braces for economic battle
(Mar 20, '03)

Iraqi crisis: Terror fallout in the Philippines
(Feb 15, '03)

Economic terrorism in Indonesia
(Oct 26, '02)

The terror front shifts east
(Oct 15, '02)

Malaysia pays the price
(Oct 15, '02)


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