Kelvin Teo
Scorpene Class Submarine of the Royal Malaysian Navy
A global financial crisis affects almost every country out there; so the question is how should a country best respond to the crisis, and on a more macroscopic level, how should how should we as an ASEAN region respond to a financial crisis that affects member countries? Currently, with the US credit rating downgrade by Standard and Poor’s and Europe, especially Italy and Spain, mired in a debt crisis of its own, there has been talk of a possible double dip recession.
How have ASEAN nations responded in the past to financial crisis? According to RAND Corporation, ASEAN member countries decreased their defence budget during the 1998 Asian Financial crisis. Thailand, for instance, saw its defence spending decline from USD$3.2 billion in 1997 to $1.8 billion in 1999. The defence budget for Malaysia declined from $3.4 billion to $2.1 billion in 1998. Indonesia, which was affected by collapse of its rupiah decreased its defence budget from $4.8 billion in 1997 to $1.7 billion in 1998. Philippines’ defence spending fell moderately from $1.5 billion in 1996 to $1.2 billion in 1998. Singapore proved to be the only exception where its defence spending increased from $4.1 billion to $4.3 billion in 1998.
The response by ASEAN nations to the 1998 Asian Financial crisis has a touch of irony, because arguably, the most realistic source of military confrontation are the disputes over the Spratly Islands, of which Vietnam, Malaysia, Philippines and Brunei are the ASEAN nations involved in laying claim to the islands, two of which as mentioned earlier decreased their defence spending during the financial crisis. People’s Republic of China (PRC) and Taiwan were the other non-ASEAN claimants to the islands. Singapore is not a claimant to the Spratly Islands, yet its defence spending increased during the crisis.
Two major military confrontations that took place within the Spratly Islands were the Johnson South Reef Skirmish, a naval battle that took place between Chinese and Vietnamese forces with the end result of a Chinese victory, and the Southwest Cay Invasion which involved Philippines, North Vietnam and South Vietnam. During the absence of the Philippines forces, South Vietnamese forces, then allies of the Philippines occupied Southwest Cay. The South Vietnamese were subsequently involved in a skirmish with the North Vietnamese task force in which the latter emerged victorious.
Going back to the topic of responding to a financial crisis, it does not come as a surprise for a country to reduce its defence spending in response. With a crisis, rising unemployment rates and salary cuts lead to diminished incomes and reduced tax returns. It will be taxes that fund government budgets. Besides, the governments are likely to divert spending from defence to other areas of need in order to cope with the crisis. The outcome, unsurprisingly, is a diminished defence budget.
The next question is how ASEAN as a region can respond to a crisis that affects the region as a whole? A response can draw lessons from the Washington Naval Conference that took place around around 90 years ago. Pursued by then US President Warren G. Harding, the goal of the conference was to discuss naval disarmament and explore ways to relieve growing tensions in East Asia. Harding’s other goal was to reduce military spending in order to pay off the national debt. What emerged was an agreement on the ratio of control of naval warships tonnage in a 5:5:3 ratio in the order of US, Britain and Japan respectively. US and Britain required high tonnage allowances because both nations adopted two ocean navies in the Pacific and Atlantic. The agreement also has a requirement for signatories to cease the construction of capital ships (most important of warships that possesses the heaviest armour and firepower) and scrap older ships.
Though the Conference had its failures, scholars have also hailed it for its success, especially as a springboard for treaties that helped create peace and stability in Europe and Asia for a decade.
A financial crisis, with its implications on cuts in defence expenditure actually serves as a useful pretext to pursue a multilateral pact for disarmament in ASEAN together with China and Taiwan, similar to the Washington Naval Conference. Such an agreement will require ASEAN nations to reduce the size of their military, and for PRC and Taiwan to reduce the size of their naval presence within the South China Sea. Current developments regarding the South China Sea dispute have recently taken a turn for the better. Just last month, PRC, Taiwan and ASEAN nations agreed to a preliminary set of guidelines of implementations on the Declaration of Conduct of Parties in the South China Sea. This agreement signalled a rare sign of cooperation in a conflict that has affected relations within the region for years.
The usual trend for countries reacting to a financial crisis is to reduce defence spending. However, when a country makes a move to reduce defence spending, such is made albeit with concerns, especially over a perceived increase in vulnerability to threats from potentially belligerent neighbours. However, if all the neighbours agreed multilaterally to reduce the size of their military and military spending, there will be less cause for such worries and concerns. Nur Bilge Criss and Süheyla Özyıldırım have explored a model that was published in a paper at The Journal of Peace Research and found that welfare maximising governments tend to find methods other than armament or accumulation of arms that will increase the security of their nations. Armament will increase the level of hostilities while trade is an important diplomatic tool that benefits the national economy. A financial crisis that results in governments decreasing defense spending, followed by a multilateral agreement to reduce military sizes, will lead to governments pursuing trade as a rational strategy in order to boost their national economies. The benefit is peace and prosperity within the region.
While the onset of a financial crisis is like clouds on the horizon, there is a saying that every dark cloud has a silver lining. A financial crisis leads to a response by individual nations to decrease their defense spending. This is actually a good pretext to pursue a multilateral agreement to reduce military sizes, similar to the one that President Warren Harding pursued around 90 years ago. Such an agreement will lessen worries of national governments, who decide to reduce defence spending, over threats from potentially belligerent neighbours. With such a multilateral pact, a rational strategy pursued by a government who seeks to maximise welfare of its citizens is to increase trade with its neighbours. Trade ultimately improves the state of the economy. Hence, the silver lining of the dark cloud is a future of increased peace and prosperity within the region.
Read also: US Relations in the South China Sea
Read also: Philippine Foreign Secretary on the South China Sea
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Photo courtesy of Wikimedia Commons
