Introduction

INTRODUCTION For Southeast Asia, 2003 was a roller coaster year. The early expectations of a gradual economic recovery were badlyjolted when the outbreak of the Severe Acute Respiratory Syndrome (SARS) in the first quarter of the year dented several economies and saw a plummeting of confidence and growth rates. But SARS was brought under control within a few months and then petered out. Growth rates and confidence started to recover, helped also by signs of a pickup in the American economy. For the year, most regional economies expanded by an average of 4.5 per cent. Singapore's real GDP growth of 1.1 per cent was an exception and reflected the devastating impact of SARS on the most open and globalized economy in the region. By the end of the year the American economy seemed to be entering a period of cyclical recovery while Japan's economic performance also improved, generating prospects for a much better year ahead for the region. But concerns about decline in foreign direct investments, in part because of competition from China, continued to be a worrying reality for countries like Indonesia, Malaysia, the Philippines, and Singapore. The external security environment of the region remained relatively benign, given reasonably good relations between the major powers in Asia, especially U.S.-China relations. However, the American-led war in Iraq, which broke out in March and the deterioration of the situation in that country following the initially easy American invasion and occupation, posed some troubling uncertainties for the region. Iraq was becoming a magnet for radicals and terrorists. If the situation is not stabilized it could give a boost to international terrorism. It has already resulted in an increase in antiAmericanism in Muslim countries, including in Southeast Asia where efforts to come up with a more coherent and co-ordinated response proved to be quite challenging. Despite regional vicissitudes and sluggish economic performance in the first half of 2003, the Association of Southeast Asian Nations (ASEAN) derived some good dividends from the generally benign atmosphere among the major external powers. Reassuring the region of its peaceful intent, a rising China sought to strengthen its relations with ASEAN. The SARS crisis provided an occasion for China to engage the region co-operatively at summit level in the face of a common threat to human security. China, followed by India and Japan, also acceded to the ASEAN Treaty of Amity and Cooperation (TAC) , which enshrined the rules of good conduct in inter-state relations. All three external powers reaffirmed their respective commitments towards negotiations ? Introduction of free trade agreements with ASEAN. To reap the benefits of growing East Asian interdependence and enhance its own cohesiveness and competitiveness, ASEAN committed itself to a new level ofintegration through the establishment of an ASEAN Community (in the security, economic, and socio-cultural realms) by 2020. This commitment was expressed in the ASEAN Concord II signed at the Bali Summit in October 2003. The main security problems facing the region were essentially nontraditional in nature, with the threat of terrorism high on the list. The bombing of the Marriott Hotel in Jakarta by the Jemaah Islamiyah (JI) , an Al-Qaeda-linked regional terrorist organization, coming ten months after the Bali bombing, was a sobering reminder that the terrorist threat had not gone away. The JI had over the past few years seen the capture of some of its leaders, including Hambali, the organization's most senior operational leader, who was taken in by Thai security forces in Thailand in 2003 and is now in U.S. custody. But the JI still posed a threat to the region and has shown an ability to replace lost cadres. Islamic radicalism in general was expected to remain a problem in some countries for years, inspired in part by developments outside Southeast Asia. A new development was the outbreak of violence in the Muslim provinces of south Thailand in early January 2004 — generally attributed to Muslim radicals whose exact identity was still unclear. Political activity in several countries in the region was anticipating important elections due in 2004 — in Indonesia, Malaysia, and the Philippines. Malaysia saw a significant leadership change when Dr Mahathir Mohamad stepped down...