VOL XXIX NO. 3 THIRD QUARTER 2001 Indonesian Quarterly ! The Impact of September 1 1 on the Politics, Economies and Security of ASEAN APEC's Messages and Implications for Rl China-RI Ties: Challenges and Opportunities MB- Macroeconomic Developments in the Second Quarter of 2001 The Muslim World and the Changing Global Environment Globalization, Re-structure and Political Stability: A View from Jakarta ASEAN and the Future of Southeast Asian Regionalism The Indonesian Electronics Industry: Dual or Segmented? The Quarterly The Indonesian Quarterly is a journal of policy oriented studies pub- lished by the Centre for Strategic and International Studies (CSIS), Ja- lan Tanah Abang 111/23-27, Jakarta 10160. It is a medium for research findings, evaluations and views of scholars, statesmen and thinkers on the Indonesian situation and its problems. It is also a medium for In- donesian views on regional and global problems. The opinions ex- pressed in The Indonesian Quarterly are those of their authors and do not necessarily reflect the opinion of the CSIS. The Logo To better represent the underlying ideas that gave birth to the CSIS in 1971 the Centre uses as of 1989 the logo that figures on the front cover of this jour- nal. The original, in bronze, designed by G. Sidharta, it consists of a disc with an engraving that depicts the globe which serves as a background to a naked man with an open book laid on a cloth over his lap, his left hand pointing into the book, his right hand raised upwards. Altogether it simbolises the Centre's nature as an institution where people think, learn and communicate their knowledge to whoever are interested, to share it with them, mankind the world over being their concern and the globe their horizon. The nakedness symbolises the open-minded- ness, the absence of prejudice, in the attitude of the scholars who work with the Centre, just, as it is with scholars everywhere. The inscription reads "Nalar Ajar Terusan Budi", which in the Javanese language essentially means that to think and to share knowledge are only the natural consequence of an enlightened mind. It is a surya sengkala, that is chandra sengkala, a Javanese traditional way to sym- bolise a commemorable year in the lunar calendar, adapted to the solar calendar system. It consists in using words that express the per- ceived meaning of the commemorated year while marking the year at the same time, each word having a numerical value. Thus, the inscrip- tion, in reverse order, represents the year the CSIS was established: 1971. Editor Bantarto Bandoro Advisory Board Mari Pangestu, Hadi Soesastro, Kristiadi, Rizal Sukma, T.A. Legowo, J. ofEditors Medelina K. Hendityo, Pande Radja Silalahi, Tubagus Feridhanusetyawan. SIT 01381/SK/Dirjen PG/SIT/72 ISSN 0304-2170 The Indonesian VOL. XXIX NO. 3 THIRD QUARTER, 2001 Quarterly CONTENTS ABSTRACTS 222 CURRENT EVENTS The Impact of September 1 1 on the Politics, Economies and Security ofASEAN lose T. Almonte 224 APEC's Messages and Implications for Rl Mari Pangestu 230 China-RI Ties: Challenges and Opportunities jusufWanandi 232 REVIEW OF ECONOMIC DEVELOPMENT Macroeconomic Developments in the Second Quarter of 2001 Staff, Department ofEconomics 234 ARTICLES The Muslim World and the Changing Global Environment AnakAgung Banyu Perwita 249 Globalization, Re-structure and Political Stability: A View from Jakarta Landry HaryoSubianto 265 ASEAN and the Future of Southeast Asian Regionalism Leszek Buszynski 277 The Indonesian Electronics Industry: Dual or Segmented? Peter Cammeltoft 286 ABSTRACTS THE MUSLIM WORLD AND THE CHANGING GLOBAL ENVIRONMENT By Anak Agung Banyu Perwita This article delineates the changing global political environment in the post Cold War era and the (re) emergence of Islam as significant political force in world affairs. These two linked developments have produced misperceptions between the Western world and the Muslim world. It has also even provided new arena for a (potential) conflict between the two worlds. Therefore, it is more than a necessary for the world to have a constructive political dialogue between the two poles in order to creating a virtual new order instead of producing new political and even military enmity between the West and the Muslim world. GLOBALIZATION, RE-STRUCTURE AND POLITICAL STABILITY: A VIEW FROM JAKARTA By Landry Haryo Subianto This article looks at the nature of globalization, and possible relationship between global- ization and its domestic impacts, and the political stability. On the nature of globalization, it is observed that there is no agreement yet on what constitutes globalization. But it must be admitted that globalization provides some threats and opportunities, it also poses exigency to all countries to adjust their domestic life more compatible to the global benchmarks. This adjustment process is in the form of restructure in their political, economic and social life. The real question is whether restructuring posed by globalization really affects (political) stability? To answer this question, one must take into account the fact that political stability of a state is determined by many inter-related factors both domestically and internationally. Both the success and failure of a restructuring process will definitely affect national stability in many ways. ABSTRACTS 223 ASEAN AND THE FUTURE OF SOUTHEAST ASIAN REGIONALISM By Lezsek Buszynski The article examines ASEAN evolution and development in terms of a shift from security to economic regionalism and the conflict between the exclusiveness of Southeast Asian re- gionalism and the inclusiveness of economic regionalism. ASEAN began as an exclusive Southeast Asian regional organisation which was limited to a specific region. Once ASEAN assumed economic and financial functions as a response to the challenge of China and the financial crisis this clash became apparent. These economic and financial functions could be better undertaken by an economic regionalism that includes China and Japan or by global trade regimes. The article concludes that unless ASEAN responds to the challenge of eco- nomic regionalism it may be supplanted by a wider form of regionalism. THE INDONESIAN ELECTRONICS INDUSTRY: DUAL OR SEGMENTED? By Peter Gammeltoft This article reports from an analysis of development of "technological capability" in the Indonesian electronic industry. This analysis suggests that the Indonesian electronics industry is better characterised as being segemented than dual. Furthermore, segmentation is manifest at several levels: at the industrial level, in the innovation system and in state and in state and society. The articles also identifies and characterises a larger number of distinct and qualitatively different company types than is normaly recognized. In terms of the different ways in which capabilities are developed, six different "development models" are identified. Finally, a number of policy recommendation are derived from these findings. CURRENT EVENTS The Impact of September 11 on the Politics, Economies and Security of ASEAN* Jose T. Almonte INTRODUCTION the Asian Development Bank has just lowered its growth forecasts - from 3.1% to WHILE the New Mega-Terrorism 2.7% GDP this year; and from 4,2% to 3% threathens the United States and in 2002. the other rich countries most September 1 1 's political effects on the directly, it has inflicted the worst collateral region have been more moderate. Like damage on the outward-looking economies Muslim communities everywhere, ASEAN's of the developing world. In ASEAN the Muslim population -the largest in the world- states with the highest export-to-GDP ratios view the attacks on Afghanistan with con- -Singapore, Malaysia and Thailand- are being cern, even when they agree with their ne- hit the hardest by the destruction of con- cessity. But they have shunned Islamist calls sumer and investor confidence worldwide. for Southeast Asian jihad. Even in Indonesia, anti-American demonstrations have been Singapore's economy, for instance, is ex- pected to shrink by 3% this year, after ex- subdued and sparsely attended. Clearly, panding by 10% last year. Totally dependent Southeast Asian Muslims do not regard their direct interests as engaged in the Afghan- on foreign trade, the city-state is seeing de- mand collapse not only in its rich western istan conflict. markets but also in Malaysia and Indonesia, Terrorists certainly do not really need its historical hinterlands. For the Philippines, mass support: all they need to do is to rad- ical ize a few fellow-believers. This is why I expatriate executive now apparently rate the *Given before the ASEAN Solidarity Network risk of social unrest in Indonesia and Singa- Meeting, organized by the Insitute for Solidarity in Asia, Makati City, 16 November 2001. pore as significantly higher. CURRENT EVENTS 225 In the larger East Asian region, the se- great uncertainty. And even the experts can curity picture has in some ways improved. hardly see when the recovery will begin. September 1 1 may not have signaled a return to the multilateral world. But it seems to J.P. Morgan Chase estimates global have taught Republican Washington that uni- growth will barely exceed 1% this year and lateral action is not always possible - even the next - the lowest in 20 years. Ironically those countries that have so far resisted for the world's only superpower. full integration in the world economy are By showing how easily terrorism can surviving rather better - a telling argument overleap frontiers and the sovereign control against globalization. of any single country, al Qaeda has taught the region's governments how much na- The Asian Development Bank has re- tional security nowadays depends on exten- duced its forecasts of GDP growth for 2001 sive cooperation among states. This is why among Asia's developing nations from 5.3% all of East Asian states -including China- in April to 3.4% in November. Last year the have declared their support for the anti- region grew by an actual 7%. The Bank also terrorist coalition the U.S. has organized. says that Asia's downturn will be sharper if the Afghanistan conflict protracted -if Japan's Another welcome byproduct of Septem- recession gets deeper- or ifAmerica's recovery ber 11 is Japan's low-profile emergence into is delayed. Even under the most optimistic the regional securityjaicture. In the context scenario, global recovery seems unlikely be- of the post-September 11 call-to-arms by fore the middle of 2002. Washington, the Diet's liberal interpretation of the 1949 'no-war' constitution has en- The Emergence of China abled Tokyo to show the flag in Middle Eastern waters. Given the downturn in ASEAN's trad- itional markets, China is emerging as an engine of growth for the region. China's for- eign trade has quintupled over the last 20 AN ECONOMIC ENVIRONMENT OF years. The country has become the world's GREAT UNCERTAINTY biggest producer of labor-intensive manu- facturing goods. Cheap Chinese exports like The terrorist attacks and their consequ- clothes and motor cycles are already over- ences have worsened the global economic powering domestic manufacturing in Viet- slowdown already palpable months before nam and Indonesia. September. The down-turn has become deeper; more wide-spread among the lead In 1999, China attracted 42% of all the economies - and more persistent. Trade has FDI (foreign direct investment) flowing into been disrupted. Risk-averse investors have Asia. ASEAN drew only 170% (the lowest raised the cost of access to capital markets leven since the early 1990s). The only long- for the poorer countries. The entire eco- term salvation for China's competitors is to nomic environment has become one of move up the high-technology ladder - ahead 226 THE INDONESIAN QUARTERLY, Vol. XXIX/2001, No. 3 of China's lower-cost manufacturing. The der- some of them, ironically enough, by the "ASEAN plus Three" formula Southeast CIA and others by networks like those of Asian statesmen propose should enable the Osama bin Laden. ASEAN economies to complement the Nowadays Southeast Asian governments North Asian ones - instead of competing are trying to soothe these separatist rebel- with them. lions with grants of autonomy. For instance, At the recent Brunei Summit, ASEAN the special autonomy Jakarta is offering and China agreed to form the world's Aceh Province -where an increasingly bloodly largest free-trade area in 5-10 years' time. rebellion has raged since 1953- will redis- They will have a market of close to two tribute in the local government's favor re- billion people, a combined GNP in 2000 venues from Aceh's oil-and-natural-gas re- of almost $1.7 trillion, and total external sources - for fifths of which the central gov- trade value of nearly $1.3 trillion. Such a ernment used to appropriate. combination should prove irressistible to A peace agreements the Ramos Govern- Japan and the two Koreas. ment signed in 1996 with the secular MNLF (Moro National Liberation Front) still holds; and the Arroyo Administration is about to POLITICAL OVERVIEW conclude one with the Islamist MILF (Moro .Islamic Liberation Front). An MILF faction Islam was brought to Southeast Asia, founded by an Afghan War veteran -the Abu beginning in the eleventh century, not by Sayyaf- has degenerated into an outright Arab warriors but by Arab traders. And the kidnap-for-ransom gang. type of Islam they brought was Sufism - a quietist and mystical variety of the orthodox As elsewhere in the world, Southeast Sunni. Through Sufism, which is based on Asian conflicts which are articulated in re- personal piety, Southeast Asian Islam was ligious or ethnic terms are often really about able to absorb religious beliefs and pract- land, economic rights, or the political con- ices non-Islamic in origin but rooted in the trol of territory (and consequent access to culture of converts. its resources). This is as true of Aceh and the vicious fighting in the Moluccas as it In recent times, even Southeast Asia's is of separatism in the Southern Philippines. adaptable Muslims have been caught up in Local "Muslim" rebellions and disturbances the political Islamism being exported from are related to extra-regional movements only the Middle East. Religious schools increas- in an opportunistic way, if they are related ingly propagate a conservative kind of at all. Islam. And Filipino, Indonesian, and Malay- sian volunteers are known to have fought in And, as elsewhere, local resentments the Afghanistan war -recruited from Islamist and frustrations against the dominant in- separatist groups in Mindanao-Sulu, Aceh ternational culture are being expressed un- in Sumatra, and the Malaysia-Thailand bor- der the rubric of "anti-Americanism." In CURRENT EVENTS 227 Southeast Asia, as elsewhere, America has peace-keeping. There is evidence of coop- willy-nilly become the surrogate of all the eration among Islamists from the three coun- western powers whose colonialist impact on tries. the non-western world has been so great over these last 150 years. Singapore's Worsened Economic Crisis As a Chinese island in a potentially tur- The Stronger Hands of Governments bulent Malay ocean, Singapore's rating for social stability has deteriorated in the wake At least for the moment, the anxieties raised by September 1 1 and its aftermath of September 1 1 . Expatriate executives now apparently rank the risk of social unrest have strengthened the hands of govern- in Singapore as second only to that in In- ments in Malaysia and Singapore. In KL, donesia. Prime Minister Mahathir's political standing has been strengthened -and the Islamist op- Premier Coh has warned that Singapore position party, PAS, weakened- by the popu- "might never return to the heady growth of lar reaction to the September 1 1 attacks. the last three decades." Meanwhile, Lee Singaporeans, seeking political stability, Kuan Yew has sounded the call to remake have just given the ruling PAP a higher Singapore over the next 10 to 20 years margin than usual in elections called 10 -by restructuring the economy and changing months early. < its development strategy. But remaking Singapore must include reducing the PAP In both Indonesia and Malaysia, govern- state's pervasive role in the economy. This ments trying to balance their own secular- seems the only way to stimulate Singapo- ist ideologies with a care for their Muslim rean innovativeness, which the PAP's constituencies have denounced the Amer- "nanny state" has stifled these last 40 ican air strikes ritually. The ASEAN Declarat- years through its uniquely successful kind ion on Combating International Terrorism of state capitalism. issued from Brune'h -while expressing the association's concern over "the pernicious THE SECURITY PICTURE AFTER effects of terrorism on international peace SEPTEMBER 11 and security, regional stability and de- velopment"- makes no mention of the anti- Ironically, September 11 has set off wel- terrorist coalition's attacks on Afghanistan. come shifts in East Asia's security politics. Republican Washington has made rap- On Manila's initiative, Indonesia, Ma- prochement with Beijing a high-priority laysia, and the Philippines are negotiating goal: China shares a border with Afghan- a pact that would commit them to sharing istan and has its own restive Muslim minority intelligence on terrorist activities, keeping in Xinjiang Province. Thus President Bush tighter control of their frontiers to stop the has redefined the campaign-period "stra- flow of weapons, and undertaking joint tegic competitor" label he stuck on Beijing 228 THE INDONESIAN QUARTERLY, Vol. XXIX/2001, No. 3 as a "constructive, cooperative, and candid A potentially significant change in the relationship with China." East Asian security picture brought about by September 1 1 is Japan's emergence as Just as significant was Russia's restraint an American military ally well beyond Ja- in the face of the American military alert panese waters. The emotional impact of the called in the wake of the September 11 at- September 1 1 attacks inhibited both China tacks. In fact Presidents Putin and Bush and the two Koreas from objecting too have apparently made some progress to- strenuously to Japan's showing the flag in ward drawing up a new strategic framework the Middle East, in the form of warships for their relationship. that joined the anti-terrorist coalition's fleet in the Arabian Gulf. Tokyo can now invoke In the larger global arena, the United Na- tions is likely to have a larger role in global this precedent for its military's taking part affairs from now on. Although Chinese- in future allied ventures closer to home - for instance, in the event of a crisis in the American relations have improved -at least Taiwan Straits or the South China Sea. for the time being- Washington strategists still regard China as clearly America's fore- The Inequities of the Global Order most military competitor in East Asia, as the power from whom the next challenge to Like other poor countries sympathetic to U.S. hegemony is most likely to come. the anti-terrorist coalition's cause, people The Pentagon's most recent Quadren- in the Philippines believe that the global community must look beyond the war on nial Defense Review (September 30) specific- ally divides East Asia into Northeast Asia terrorism - and deal once and for all with the inequities that remain in the global Gapan and Korea) and the littoral states (be- tween Japan and India) as areas of endur- order. Because it is on the redressing of these inequities that the long-term security ing national interest to the United States - regions it cannot allow a hostile power to of all our countries depend. dominate. For instance, though world trade has risen faster than world GDP, the poor coun- To prevent this from happening, "se- tries' proportionate share of it has de- curity cooperation" with Asian allies has clined - partly because of continuing pro- become a key U.S. defense strategy. This tectionism in the rich economies. The concept is broken down into two program- global coalition must do all it can to re- matic goals. The first is to ensure access to move poverty as a source of conflict - East Asian bases of U.S. forces and their by helping the world's poorest peoples take interoperability with friendly forces to part in humankind's adventure of develop- ensure that maritime Asia (as distinct from ment. mainland Asia, where Chinese dominance is conceded) stays in friendly hands. The It is the cultural problems of globaliza- other is to ensure that the continental- tion which may prove the most intract- maritime military balance is preserved. able. Islamism is only one manifestation of