The New York Times

Sunday, September 19, 1999

Against the Tide

A Pause on the Way To Asia's Century

By DAVID E. SANGER

CHRISTCHURCH, New Zealand - ASIA at the end of this decade was supposed to be all about microprocessors, not machetes.

Instead, the country that only four years ago was the hottest emerging market in Southeast Asia - Indonesia - now looks like a candidate for national disintegration. High-tech firms that were building next-generation power plants and wiring the country's 13,000 islands for cell phone networks fear that East Timor is just the beginning. Even Indonesians who are appalled at the military-sanctioned killings in East Timor wonder whether the arrival of international peacekeepers could inspire dreams of independence across the archipelago.

Head due north to China, which two years ago seemed to soaring as fast as Japan was falling, and you discover a lot of angst. Two years ago the country skill fully side stepped the Asian economic crisis. But by the time

President Jiang Zemin and President Clinton met here in New Zealand to patch up an acrimonious year, the corridor talk suggested that China's luck had run out.

After two decades of spectacular growth, China's leaders are beginning to admit that they cannot stop the deflation and mushroomming unemployment that are no drowning the country's economy. And military strategists are asking whether economic insecurity makes It more likely that China's leaders will be tempted to lash out against Taiwan. The Asian Century wasn't supposed to start like this. In scores of books with titles like "Asia Rising," and in the Clinton Administration's own optimistic imaginings of a "Pacific Community" a few years back, the Asia of the turn of the century was supposed to be a place where booming growth created a web of economic integration. That, in turn, was supposed to set loose an unparalleled era of political cooperation.

Now the theory is being put to its greatest test. Will Asia's finely honed instincts for amassing greater prosperity - especially after a bruising economic crisis - ultimately restrain all these festering conflicts? Will they make Indonesia's military leaders think twice, or lead the pragmatic Chinese to ignore Taiwan's provocative rhetoric about virtual independence?

Or was the world fooling itself when it imagined, just a few years ago, that the cross-border teamwork that enabled Indonesians, Malays, Taiwanese and Chinese to build Toyotas together would eventually translate political stability?

Those Toyotas and the country that finances them - Japan - may hold the key to those questions. If Tokyo recovers from its own lost decade quickly enough to pump new money and dynamism into the region, it could speed an economic recovery - and create a greater incentive for nations to resume the business of business.

Handled deftly, even the Timor crisis might contain an opportunity to tie the region together. "You sense everywhere that we're at a critical moment for the whole region, said John Howard, the Prime Minister of Australia, a country that spent years trying to integrate itself with Asia and now finds itself in the uncomfortable position of acting as the largely white, Anglo-Saxon nation leading the peacekeeping brigade into East Timor. "Ten years ago," he said, "it would have been unimaginable that the diverse nations of Asia would come together to stop a humanitarian disaster like this one."

Mr. Howard is right - Asia has no equivalent of NATO, no institutions like the European Union, and until a few weeks ago its leaders always reflexively rejected the idea of getting involved in a neighbour's internal affairs. It was an inchoate sense that the entire region's future was at stake that led the Philippines, Malaysia, the United States, New Zealand and others last week to say they would contribute troops to restore order in East Timor, even at the risk of tangling with the powerful military of the world's fourth most populous nation.

But the Prime Minister's countrymen are also right when they fret about the emergence of a new "arc of instability," running from a collapsing North Korea through China, across Indonesia and into India and Pakistan, where nuclear calamity always seems a firefight or two away.

This image of two Asias - one that has abandoned ideological conflict to build more clean-rooms and laptops, and one that brutally fights for advantage in Timor and Kashmir - captures a vast region's dual realities. Outside Jakarta, newly middle-class workers assemble personal digital assistants, even while the marauding militias in East Timor, some 1,400 miles away, sow terror and threaten an unpleasant welcome for international peacekeepers. Many Indonesians, in short, have a stake in stability and their own slice of the global economy. Many do not.

In their more candid moments during Mr. Clinton's Timor-obsessed travels Down Under last week, the President's foreign policy advisers conceded they have no idea how the experiment of nudging Asia to police its own will work out.

Perhaps, one of Mr. Clinton's top aides said, the effort to force Indonesia to respect the results of a United Nations-supervised referendum on independence will be seen in a few Years as a critical victory for democracy in Asia, a logical extension of the movement that flowered in South Korea and Taiwan in the mid-1980's. Or it may be, he added, that it will be seen as "the moment when all of Asia's new instincts about stability and economic integration are over-whelmed" by the old ghosts of political disintegration. Indonesia may be among the trickiest corners of Asia to conduct the experiment, and China may be among the safest. Until two years ago, Indonesia was held together chiefly by rising prosperity. Indonesians overlooked the massive corruption and special deals cut for Mr. Suharto's family and friends. But the Asian economic crisis triggered Mr. Suharto's downfall.

That left a desperately weak government and a divided military. Mr. Suharto's successor, B. I Habibie, concluded that he had to get the Timor problem off his plate, and allowed a referendum in which East Timor chose independence.

Parts of the Indonesian military rebelled, unwilling to give up a territory they seized a quarter century ago, even if the resulting chaos threatened huge economic sanctions.

Paul Wolfowitz, the former American ambassador to Indoaesia, believes that Mr. Habibie's sudden reversal last weekend, his decision to allow in the U.N. peacekeepers, reflected Indonesia's surprise at the foreign reaction to the East Timor killings and its "fear of being punished by the outside world." But that is balanced, he believes, by another fear - "a legitimate one, that East Timor might lead to the break-up of the country," especially if people think Indonesia's next president, to be elected soon, did not win the post legitimately.

China's leaders, on the other hand, have been forced to live and breathe the logic of economic reality. A rising standard of living is the Communist Party's last claim to legitimacy. And that means convincing investors that the country has its economic and political act together. Taiwan has always been an open sore, of course, and if it declared independence from the mainland China's leaders would have to respond, probably with force. Some in the Chinese leadership argue that such a moment is fast approaching. But so far, at least, the forces of economic rationality have won the day, arguing that China needs Taiwan's wealth and its huge investments on the mainland more than it needs Taiwan's real estate. And the only way to keep the cash flowing is to maintain the status

quo, complete with the ambiguity about Taiwan's political status.

The Administration still clearly believes that the lure of economic prosperity can be used to keep weapons holstered. It turned off International Monetary Fund and World Bank aid to India and Pakistan when they tested nuclear weapons, then turned it back on at the first sign that the two sides would

back away a bit.

And on Friday President Clinton announced the most extensive easing of sanctions on the ultimate rogue state - North Korea - in return for a temporary accord to stop shooting long-range missiles over Japan. It's a big risk: No one knows if the North is serious about the deal, or if the benefits Washington offers - consumer goods and investment from America -can cut through four decades of paranoia.

"It's probably not as powerful a toll as we'd like it to be," said former Secretary of Defence William Perry, architect of the strategy. "But it's worth a try."