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Introduction At the end of 2005 Southeast Asia looked in a better condition than at any other time since the 1997 Asian crisis. The economies had recovered and there was steady growth as countries continued to pursue economic reform. The world economy was resilient in 2005, notwithstanding a modest cyclical slowdown during the year. Moreover, Southeast Asia's economic prospects were buoyed by the growing linkages with the rising economies of China and India and a recovering Japanese economy. Apart from a few cases, regime stability characterized the political landscape of the region. There were two other positive factors: Indonesia and the Association of Southeast Asian Nations (ASEAN). As the largest country of Southeast Asia located in a huge maritime swathe between the Philippines on the east, Australia in the south, and the Bay of Bengal in the northwest, Indonesia's stability or lack of it, has had an important bearing on perceptions of Southeast Asia. Under the administration of President Susilo Bambang Yudhoyono, the country was back on the right track, working to achieve domestic stability, improve governance, build institutions, and attract investments. Meanwhile, ASEAN was regaining some of the importance it used to enjoy a decade earlier. It was again in the centre of moves to shape a new Asian regional architecture as it organized the first East Asian Summit that included not only the 13 members of the ASEAN+3 process but also India, Australia, and New Zealand. It was being courted by the major powers as each tried to maintain or extend its influence. ASEAN's complexion also seemed to be undergoing subtle changes as a result of the democratization of Indonesia and the growing realization that the principle of non-intervention needed to be used flexibly to enable cooperation on transnational challenges. The decision to draw up an ASEAN Charter raised hopes of a more rules-based organization with a better sense of common values. Yet, despite the more promising outlook for Southeast Asia, many challenges remained. Indonesia needs to achieve and sustain close to 7 per cent economic growth to make a dent on unemployment and poverty. It was difficult to see this happening unless the fragile investment climate is improved. Indonesia's democracy also needed consolidation as the country struggled to build the institutions and the x Introduction rule of law without which democracy may not be sustainable. Street demonstrations in Bangkok and Manila to oust the leaders of the two countries, while reflective of political ferment and contestation in the process of democratization, also highlighted its weaknesses. In Myanmar there was no indication when the work of the National Convention, a landmark on the roadmap of reform, would be completed. Terrorism remained a threat, especially in Indonesia and the Philippines. ASEAN still needed to demonstrate that it had the will to move forward boldly to achieve greater internal cohesiveness. Its economic integration agenda remained well short of implementation. Meanwhile the major powers were more active in Southeast Asia. In recent years China has significantly increased its influence through skilful political and economic diplomacy, eclipsing that of Japan, at least in the perception of Southeast Asian states. There were signs that US attention to the region was becoming more broad-based, and not just confined to counter-terrorism. Noteworthy in this respect was the renewed attention to Indonesia, including the resumption of military aid to Jakarta. India's economic links with Southeast Asia were still far behind the other three major powers but were growing rapidly. In the broader Asian geopolitical environment, the uncertainties caused by the shifting alignments between the major powers were heightened by tensions in Sino-Japanese relations, which remained at a low ebb in 2005. Meanwhile US-Japan security relations continued to strengthen and Japan was on the path towards becoming a more "normal" power. Strategic cooperation between India and the United States was deepening, even as economic links between China and India were expanding rapidly. China's military modernization was causing anxieties in the United States and Japan. Overall, in strategic terms, the United States remained distracted by and preoccupied with Iraq and the war on terrorism, a state of affairs that continued to provide China more freedom...


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