Since the founding of ASEAN in 1967, what

significant political and economic challenges has the

region faced? How has ASEAN addressed these
issues? Give concrete examples.

GUEVARRA, ELAINE A.
2019092781@feu.edu.ph
ILS1212 – DEVELOPMENT AND COOPERATION IN
ASEAN
Summative Assessment for Midterms
Word Count: 1, 184
 In 1997, it was the tough year that challenged both the political and economic capacity of
the Association of Southeast Asian Nations (ASEAN), while proudly looked back on its
achievements for the past thirty years in economic growth, regional security, and social welfare,
new challenged (economic and political uncertainties) disrupted the development of the regional
organization (Setnoobsarng, 1998). This paper emphasizes the economic and political challenges
faced by ASEAN countries in the year 1997. In terms of economic challenges, the ASIAN financial
crisis is one of the biggest economic meltdowns that the ASEAN has faced, which hugely affected
economic and social sectors. While in terms of political challenges, amid the ASIA financial crisis
there were internal problems in Cambodia (sooner became member states) that could pose a
severe problem on the regional security and questioned the ASEAN influence on internal
developments. Given these challenges, the ASEAN’s capacity and solidarity were tested by firmly
cooperating with one another throughout the succeeding years by attending summits, pulling out
strategies, and ratifying treaties.

Economic Challenge. At the beginning of July 1997, there was a sequence of crashes
on the currency exchange rate that spread throughout the ASIA, affecting almost all ASEAN
member states that eventually became a financial crisis or what we known as the “ASIA Financial
Crisis” (Southeast Asian Affairs, 1998). Over the past two decades, so much attention was
concentrated on ASEAN due to its fastest regional growth of gross domestic product (GDP) with
an annual rate of 6.6 percent, however, it suddenly meltdown in mid-1997 affecting first Thailand
then it became a domino effect on other member states (World Bank, 2021). The economic crisis
was started from an exchange crisis that later on transform into a banking and financial crisis,
wherein real sectors were all affected due to the dramatic rising interest rates, growing costs of
imports, sudden reduction of creditors in banking sectors, and the massive bankruptcies of firms
which left millions of debt (Setboonsarng, 1998). Many ASEAN member states were directly
affected, resulting in panic in their financial markets that decreased and destabilize their
economy.

In response, the ASEAN member states learned to emphasize the value of “enhancing trade and
investment in the ASEAN region”, wherein there were various set of solutions was pulled out in
order to address the crisis as a whole. First, ASEAN member states conducted a Second Informal
ASEAN Summit in December 1997 that tackled the enhancement of the ASEAN Free Trade Area
(AFTA) to increase more the regional trade system and boost the investment in ASEAN (Frost,
1997). The AFTA agreement is to lessen intra-ASEAN tariffs and remove so much restriction
among the largest economies by the year 2003, aiming to maximize the tariff for only 0-5 percent
so there will be free or low-cost movements of goods, services, and financing in ASEAN countries
(Chia, 2013). Second, in order to revitalize the financial market, the ASEAN held again a Second
ASEAN Finance Meetings in February 1998, in which they proposed a “mutual monitoring system”
led by a permanent secretariat (Setboonsarng, 1198). As defined by ASEAN Briefing (2016), the
ASEAN mutual monitoring system will be an advanced ‘warning system’ if there will be an
incoming or possible financial crisis again. This is a great solution in order to have time to prepare
and exchange ideas on each country regarding financial and exchange markets. Also, it will be
served as a tool to monitor the fluctuations of currencies and suggest appropriate actions in order
to secure the stability of the region. In line with this is the proposal of Bilateral Payments
Arrangement (BPA), wherein it is a mechanism for using ASEAN currencies on the regional trade
system (Setboonsarng, 1198). Given above, it is evident that the ASIA financial crisis severely
crashed ASEAN economies but in the end, the crisis itself influenced every ASEAN member state
to be more linked with one another by attending summits, enhancing previous treaty (AFTA)
proposing advanced mechanism (mutual monitoring), and using same economic principles (BPA)
for the rise again of the economic region.

Political Challenge. Amid the beginning of the financial crisis started in Thailand, there
was an internal political turmoil in Cambodia (sooner became member state), which requires
ASEAN’s response in order to prove its influence and capacity in the region. The 1997 Cambodian
political turmoil is rooted in their history and then inherited by the two Prime ministers – Prince
Narodom Ranariddh (president of the Funcinpec) and Hun Sen (vice president of Cambodian
People’s Party CPP) who worked together but did not get along in the end, resulting in civil tension
and armed conflict in 1997 (Narine, 2002). According to Peou (1998), the ASEAN member states
were alarmed and well aware that they need to respond immediately in order to maintain their
pledge of having regional and peace stability in the region, even by breaking its broad principle of
“non-interference” policy. In regards to this, there is a Treaty of Amity and Cooperation (TAC)
adopted in 1976, emphasizing that there should be ‘mutual respect of sovereignty, non-
interference policy, and promote peace in settling disputes’ in all member states and even on non-
member states (Hussey, 1991).

For this reason, ASEAN was challenged to address the issue based on their figure of “ASEAN
Way”, wherein it is a peaceful approach with certain diplomatic policies (e.g., preventive
diplomacy, bilateral interaction, etc.,) that needs to adhere. However, due to its hallowed principle,
mixed responses, and shallow consensus the ASEAN made a move that “quite violate TAC
principles” in order to fasten the approval of Cambodia membership and for the stability of the
region (Peou, 1998). Despite joint statement and unity appearance, ASEAN member states
responded differently with one another, wherein Thailand, Philippines, and Singapore gave a
negative reaction to the coup, while Vietnam gave a sympathetic approach given of having the
strong historical link with Cambodia (Peou, 1998). Given above, it is evident that ASEAN political-
security was not strong and have several challenges such as having hallowed principle, too
process-oriented, absence of common foreign policy, and the vague figure of “ASEAN Way”.
Adding the internal pressure on every member state regarding the emerging regional economic
crisis, which severely preoccupied the ASEAN states.

In a nutshell, the year 1997 witnessed significant political and economic challenges for
ASEAN countries. Compared with the previous years of having sustainable growth,
developments, and achievements, the year 1997 tremendously meltdown the ASEAN’s economy
due to Asia Financial Crisis and challenged its political security and stability within the region due
to the political turmoil in Cambodia. As an organization, ASEAN is the representative of the region
and pledges to maintain peace and stability with one another through the “ASEAN Way” figure
(Narine, 2002). However, the organization itself has so many internal challenges such as having
shallow principles, no common foreign policies, and too process-oriented states (Hussey, 1991).
The year 1997 was a hard year for ASEAN member states due to political transition, state-
building, economic meltdown, and internal problems. Having problems internally and externally
was a big challenged for the ASEAN but it also became the way to mold ASEAN on what it is
now.
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