In much of Southeast Asia, economic growth has stalled, freedoms are being rolled back and terrorism is a constant threat. Beset by economic trauma, repression and terror, can the region thrive again? Does the region have what it takes to rebound as Asia’s dynamo?

In November 1971, foreign ministers from five Southeast Asian countries—Singapore, Thailand, Indonesia, Malaysia and the Philippines—gathered in Kuala Lumpur to confront a frighteningly changed world. Richard Nixon had declared the famous Nixon Doctrine, which said, in effect, that Asians were on their own: the U.S. wasn’t going to protect them anymore. War was raging in Vietnam, and the communists were winning. Four weeks earlier, Mao Zedong’s China had wrested away Taiwan’s seat in the United Nations.

To deal with such tectonic shifts on their own geopolitical map, the ministers labored hard—and created an acronym you’ve probably never heard of. Southeast Asia, they professed, was a Zone of Peace, Freedom and Neutrality, or ZOPFAN. Then, presumably, they went to lunch.

There was a touch of platitude in the declaration, but even more hypocrisy: two of the five nations, Thailand and Indonesia, were out-and-out dictatorships, and the Philippines would become one 10 months later. Prosperity wasn’t even cited as a goal: with the exception of tiny Singapore seemingly born with Asian Tiger DNA, the remaining countries were populous, poor and going nowhere in a hurry. ZOPFAN, on the face of it, had as little long-term potential as it did euphony.

But before three decades were out, Southeast Asia had fulfilled all those 1971 promises. In 1998 the last of the military dictators, Indonesia’s Suharto, was shoved off his throne by angry masses. Democratically elected governments now ruled throughout the original membership of the Association of Southeast Asian Nations (ASEAN), created in 1967. Cold war legacies were in the dustbin: the Philippines tossed out two giant U.S. military bases, and the Soviets were gone from Vietnam’s Cam Ranh Bay. The intraregional conflicts that had once flared—between Indonesia and Malaysia in the 1960s, Vietnam and Cambodia in the late 1970s—had become almost unimaginable. Southeast Asia was free, neutral, at peace—and economically booming to boot.

This was a giddy era. Malaysia had eight consecutive years of 8% economic growth—a record in Asia bested only by China—and to announce its arrival as an economic power, it built the world’s tallest pair of buildings. A Thai tycoon announced plans to launch his own telecommunications satellite. Just about every Southeast Asian country started a national car project; Indonesia went further, declaring that it would produce passenger jets. Singapore was asked by Beijing to in essence annex a part of China to try to teach the mainland—of all places—how to run a tightly controlled industrial zone. No Goliath was too intimidating to ASEAN’s original members, and by 1999, the group had expanded to include Vietnam, Cambodia, Laos, Burma and Brunei. The confident hope was that the Southeast Asian miracle would inevitably spread: that economic development models could be stamped into existence as easily as computer chips on a Malaysian factory line. Political pluralism, surely, would follow as day follows night.

Today, the miracle is looking more like a muddle—or perhaps a mirage. The 1997 Asian economic crisis—sparked this very week six years ago by the collapse of the Thai baht—was the pin that pricked the bubble. If you want to see business fizziness nowadays, you have to look north to China, which isn’t taking lessons from anyone anymore. Indonesia, thanks to billions of dollars in foreign investment, grew its economy at annual rates of nearly 8% in the ’90s. Today, growth is at 3%, thanks to persistent corruption in the country’s courts and bureaucracy. The Philippines, the region’s perpetual underachiever, is starting to suffer widespread power cuts in the provinces—a scourge it believed it had vanquished in the mid-1990s. “We can kiss our economic gains goodbye,” says Allan Ortiz, president of the state-run energy concern Transco.

Politically, the era of People Power and reformasi has given way to something far less liberal: a not-so-subtle return of the Iron Fist. Last month, the junta in Burma grabbed long-tormented Nobel Peace Prize-laureate Aung San Suu Kyi and spirited her away to an unknown location, which might be Rangoon’s notoriously brutal Insein Prison. Suu Kyi has been in and out of house arrest for the most part of a decade, but until now she has never been tossed in the clink. In May, Indonesian President Megawati Sukarnoputri abandoned a peace process with separatists in Aceh province and launched a full-scale military invasion. (Her popularity has skyrocketed since she sold the offensive as the only way to keep the nation whole.) Earlier this year Thai Prime Minister Thaksin Shinawatra ordered a three-month campaign to wipe out drug pushers in Thailand; it has since claimed the lives of nearly 2,300 supposed miscreants. (His ratings have also risen, largely with a middle class sick of the country’s drug scourge.) The hard-liners are now engaging in mutual backslapping. Thaksin enthusiastically supports Megawati’s war in Aceh. Philippine President Gloria Macapagal Arroyo recently said she was “inspired” by Thailand’s war on drugs and promised to “do a Thaksin” in her own nation.

A sinking—or stuck—Southeast Asia creates enough of its own worries even without consideration of the region’s most real and present danger: terrorism. The Bali attack was Southeast Asia’s 9/11, and the subsequent arrests and ongoing trial of its perpetrators give an illusion of a threat contained. The opposite is true. Bali exposed Jemaah Islamiah (JI) as a region-wide Terror Inc., which, according to terrorism expert Rohan Gunaratna, is al-Qaeda’s “most successful attempt to create a direct but largely independent and self-financing proxy.” JI has been dented by the Bali arrests but hardly defeated. In fact, its reach seems only to grow. In recent weeks, suspected JI operatives have been nabbed for the first time in Thailand and Cambodia. Phnom Penh police detained four suspected terrorists, and Cambodian Prime Minister Hun Sen said there was evidence they planned an attack on a meeting of visiting foreign ministers last month, which was attended by U.S. Secretary of State Colin Powell.

Terrorism, of course, is fueled in part by economic malaise and harsh politics. The ’80s and ’90s were Southeast Asia’s glorious adolescence, which was supposed to lead to a 21st century golden era of prosperity and Western-style freedoms. Instead, the region has stepped into an age of living dangerously.

Whither Democracy?

Stability was the issue that brought ASEAN ministers together in 1971 for ZOPFAN, and it remains a challenge in today’s Southeast Asia. Citizens want stability, investors demand it, ruling élites thrive on it. Some nations have stability to the point of political stasis (Vietnam) or outright repression and brutality (Burma and Laos). If membership in ASEAN has pushed those countries onto a more liberal path, the road signs are pretty hard to spot. For example, Laos this year allowed UNICEF into the country for the first time to visit juveniles locked away in its dank prisons—on the condition that the agency not report what it found inside. “Asian countries are no longer under the same pressure from the U.S. on human rights,” says Brad Adams, executive director for the Asia division of Human Rights Watch. “Governments now find a convenient new language to use for crackdowns: national security.”

Instability has become a chronic condition in Indonesia and the Philippines, countries that ejected dictatorships with very different results. Two decades of rule by Ferdinand Marcos fertilized the Filipinos’ love of irrational but always exuberant democracy—to many an investor’s despair. When Suharto’s dictatorship collapsed, Indonesia was left with almost no democratic institutions, and the fractious nation proceeded to unravel. Megawati—the country’s third President in six years—had no choice but to rule with the support of the military. That has dented the public’s faith in this nascent democracy. A recent poll by the Indonesian newspaper Kompas showed that 89% of respondents thought the nation’s political parties were only busy taking care of their own interests and those of the élite—and that was before suspicions of Megawati’s government rose last week about a questionable jet- and helicopter-purchase worth $197 million—an echo of a scandal that did in her predecessor Abdurrahman Wahid. “Ours is a very backward democracy,” says Fachry Ali from the Jakarta-based Institute for the Study and Advancement of Business Ethics. “There is hardly any reason not to be pessimistic.”

Singapore and Malaysia have the most evolved democratic institutions in Southeast Asia: Westminster-style systems with all the rough populist edges sanded away. In its 38 years of independence, Singapore has been governed by only two Prime Ministers, and the People’s Action Party has never won a general election by less than a landslide—a record surpassing even that of Japan, the ultra status quo democracy.

A city-state of 4.1 million people can’t be a realistic model for many larger countries, but it can certainly be an inspiration to leaders such as Thailand’s Thaksin, a populist billionaire businessman. “Thaksin is a control freak,” says Kraisak Choonhaven, a member of the Thai Senate’s foreign-affairs committee. “He wants to see results.” That he’s done. To win power, Thaksin promised every village in the country $24,000 upon election, and promptly coughed up the cash after his victory. He set up a health-care system in which Thais pay 70 cents for a visit to the doctor. Clinics are jammed with happy constituents, although nearly 1,000 doctors have bailed out of the public health system. Most controversially, this February he launched his war on drugs. In the next three months, legions of suspected drug dealers and users—most of them young men—were gunned down in the streets of their towns or villages. One innocent victim was a nine-year-old boy killed when police opened fire on a car driven by his fleeing mother. According to Thaksin—who has a Ph.D. in criminology and worked as a cop before going into the telecommunications business—only “about 35 cases” involved police officers, all of whom fired their weapons in self-defense. And the other 2,000-plus killings? “It’s a matter of bad guys killing bad guys,” he said.

The U.N. and foreign governments expressed concern over the slaughter, but little more. Human-rights groups were appalled. “The Thais have gone from being the leader in rights to a country that seems to almost resemble its neighbors Cambodia and Burma,” says Adams of Human Rights Watch. “Most Thais would be amazed to hear that, but the scale of violence is really shocking.” Adams is right: most Thais were totally in favor of the campaign, leading Thaksin to announce that he was contemplating similar purges of numbers runners, flesh traders, land encroachers and bid riggers—as he puts it, “decisive action against all bad guys.” Critics of the government fear that even loyal oppositionists may be hunted down like petty criminals, and no wonder: national police chief Sant Sarutanont told reporters on May 20 that “opinion makers” were among the targets of the next campaign.

Thaksin has been as busy in the corridors of power as on the streets. Through adroit mergers and coalitions with other political groups, his five-year-old Thai Rak Thai party has a lock on the current parliament. In May he said other parties “shouldn’t even contemplate” trying to beat Thai Rak Thai at the polls. This is a stupendous change for Thailand, whose past governments have been run by the military or shaky political coalitions. When Thaksin completes his stint in office within the next 19 months, his will be the first civilian government to last a full parliamentary term. In April, Thaksin told members of his party that Thai Rak Thai would govern Thailand for the next 20 years—presumably with him as leader.

Cambodia’s Hun Sen also recently said he would like to stay in power for a long time, and this month the country is holding its third general election since the end of the calamitous Khmer Rouge days. On the surface, that sounds like good news. But prior to the last election in 1997, Hun Sen sent tanks into the streets of Phnom Penh, and had soldiers raid the homes and headquarters of his political rivals and shell the house of his co-Prime Minister Norodom Ranariddh, who had to flee the country. This time around, the violence has lessened—although there have been several broad-daylight political assassinations. Hun Sen is so confident of victory in this month’s electoral race that he isn’t even bothering to campaign.

Can Business Recover?

Strongmen can, at the very least, be good for an economy when they care to be. Thailand, for example, has certainly reaped economic benefits from Thaksin’s rule: first-quarter GDP growth this year hit a boom-era 6.7%, and Thailand remains one of the few Southeast Asian countries still able to attract hefty amounts of foreign investment. In the early 1990s, Vietnam was considered a surefire contender for economic hypergrowth along the lines of Malaysia or even China. The communist government in Hanoi faltered with its reforms, and many businessmen who swooped in to ink deals soon round-tripped their way out. But the country is now doing well, with agricultural, garment and shoe exports helping to chalk up 7% annual GDP growth over the past decade.

The hopeful scenario of the ’90s was that rapidly rising incomes in Southeast Asia would naturally lead to more relaxed leadership and transparent politics, as it did in South Korea in the 1980s. (It’s a theory frequently invoked in discussions of China’s future.) There’s no evidence of such a development in Vietnam. For several years, Singapore has been promising more freedom to its prosperous citizenry. “We are moving toward democratization,” says Chan Heng Chee, Singapore’s ambassador to the U.S. “We will be more open.” Malaysia’s former Deputy Prime Minister, Anwar Ibrahim, thought his country was ready for something new when he tried to oust Mahathir Mohamad from the premiership in 1998. But Anwar underestimated his onetime mentor: he was summarily fired and is now in jail for corruption and sodomy.

But Malaysia might prove to be an accurate indicator of Southeast Asia’s economic future. Mahathir successfully transformed a country of tin mines and rubber plantations into a modern economy, featuring fancy skyscrapers and humming factories alike. He did it his way, rarely without controversy and often drawing outrage, but he succeeded in attracting billions of dollars of foreign investment. Mahathir is retiring in October, and successor Abdullah Ahmad Badawi might have to work twice as hard as Doctor M just to keep the country from losing pace. Today, Malaysian factories can’t compete with cheaper labor in Vietnam and China. Almost no one in Southeast Asia can divert the flood of investment heading toward Shanghai or Guangdong. “China is like a vacuum cleaner sucking up foreign direct investment,” says Abdul Razak Baginda, who heads a Malaysian government-affiliated think tank in Kuala Lumpur. “I think we have to go back to our roots—to agricultural production and niche manufacturing areas.”

That means growth rates of 8% a year are gone forever—up to 5% is just about as high as can be expected for Malaysia now. The country’s often stated goal of becoming a developed nation by 2020 will have to be extended—for a long time—and that probably refers to not only affluence but democratic freedoms too. As Malaysia goes, so might the rest of Southeast Asia, and that’s assuming that no unforeseen catastrophe—such as SARS—shakes the region further.

Will Terrorism Be Endemic?

With 100 kilos of potassium chlorate, JI wiped out the tourist trade in Bali (it has yet to recover after eight months), gave a name and faces to terrorism in Southeast Asia and showed the reach of its tentacles. The Bali bombers were Indonesians, but they had long histories in Malaysia. JI adherents train with southern Philippine rebels, have been spotted in southern Thailand and are cultivating Muslim minority tribes in Indochina. In 2001 they reconnoitered in Singapore, Indonesia and Malaysia to see if they could blow up some U.S. naval personnel or warships.

Seven or eight of JI’s top leaders are still at large. Could they accomplish another Bali? They might not need to. “It would only take a couple of blasts in Orchard Road [Singapore’s main shopping district] to have a grave economic impact,” says Zachary Abuza, author of a forthcoming book on al-Qaeda in Southeast Asia. That is not the worst-case scenario, by any means. The Strait of Malacca, between Malaysia and Indonesia, is the world’s busiest waterway, a maritime bottleneck that is only 2 km across at its narrowest point: hundreds of ships pass through each day, including those carrying almost all of Japan’s oil from the Persian Gulf. Security is so loose that pirates hijack ships every week. “Most people in the business think an al-Qaeda-linked attack of some kind at sea is inevitable,” says a senior maritime security official in Southeast Asia.

Last September, captured al-Qaeda operative Omar al-Faruq told U.S. interrogators that he had begun plotting a suicide attack against American vessels visiting Indonesia, but had to give it up due to a lack of local volunteers willing to sacrifice their lives. A scarier possibility is of terrorists hijacking an oil tanker or a ship carrying chemical or nuclear waste, which “regularly transit the Strait without any escort,” the official says. That might not be a mere scenario: there have been three mysterious attacks on chemical tankers in the Strait in the past month. “It’s particularly worrying that the attackers did little more than get on board, immobilize the crews and leave with a few token valuables,” says a regional intelligence official. “They were almost like training exercises.” If a terrorist blew up, say, a liquefied natural-gas carrier, the resulting blast would be like a mini nuke and could flatten an entire port. Singapore’s Senior Minister Lee Kuan Yew was alarmed enough to issue a public warning last year about the dangers posed by seaborne attacks on the republic’s port.

Shortly before the ASEAN ministers declared their region ZOPFAN in 1971, Asia-based journalist Dick Wilson published a thick and thoughtful book called Asia Awakes. Coverage of China, Japan and India filled the most pages. Describing Southeast Asia, Wilson called the region “a quarrelsome collection of small states which are politically, economically and militarily vulnerable.” Since then, the region has experienced myriad blessings: oil revenues for some countries, inspiring leadership for others, political freedoms won stirringly elsewhere. Those triumphs of resources, finance and politics became, for a time, batik-tinged lenses through which one could look past Southeast Asia’s problems to its tantalizing potential. The issues for the region now—questionable or authoritarian political systems, economic competition from China, and terrorism—are obstacles that even the most optimistic visionary has trouble seeing past. In the 20th century, the region’s bogeymen—imperialism, war and communism—came from without. In the 21st century, Southeast Asia’s greatest threats come from within.

(adapted from TIME)