Proceedings of the Standing Senate Committee on
Issue 21 - Evidence
OTTAWA, Wednesday, May 27, 1998
The Standing Senate Committee on Foreign Affairs met this day at 3:23 to examine
and report on the importance of the Asia-Pacific region for Canada
(developments in East Asia).
Senator John B. Stewart (Chairman) in the Chair.
The Chairman: Our first witness is Raymond Chan, who was first elected to the
House of Commons in 1993, and re-elected in 1997. Mr. Chan is a professional
engineer who worked at the TRIUMF Research Centre at the University of British
Columbia. He is a business man, and in 1989 he founded and chaired the
Vancouver Society in Support of the Democratic Movement. He came to Canada in
1969, and he became a Canadian citizen in 1974.
Mr. Raymond Chan, P.C., M.P., Secretary of State, Asia Pacific, Department of
Foreign Affairs and International Trade: In early April, I visited Indonesia
with Jim Peterson, the Secretary of State for International Financial
Institutions. We were accompanied by officials from the Department of Foreign
Affairs and International Trade, CIDA, EDC, and the Department of Finance.
Secretary Peterson went on to Malaysia and Singapore, and I travelled to
Our mission's objectives were to deliver a $280 million bilateral aid package
for the Indonesian people, and to encourage the Indonesian government to enter
into good, serious negotiations with the IMF negotiator in Jakarta. At the
same time, we encouraged the IMF to be more flexible when demanding actions
that are sensitive to the well-being of the people, such as some of the price
subsidies. We also hoped to assess where future Canadian support might be most
appropriate. Our overall initiative was to demonstrate Canada's concern. We
also wanted to show that Canada maintains a presence in the region.
When I was in Indonesia, we met with the then-President Suharto and a number of
the cabinet ministers, including the Minster of Justice, who still continues
in that post, and the Coordinating Economic Minister, Ms Ginandjar, who also
maintains her position. We also spoke with Mr. Juwono, the Minister of the
Environment, about the forest fire issue. He has since moved to Education and
Culture. The meetings went very well. The message was delivered to both the
government and the IMF negotiator.
We also met with local non-government organizations, or NGOs. We wanted their
assessment of the situation in Indonesia, both on the social side and the
In Malaysia, Secretary of State Peterson called on Anwar Ibrahim, who is both
the Deputy Prime Minister and the Minister of Finance. He also visited the
Governor of the Malaysian Central Bank. In Singapore, Secretary of State
Peterson met with National Development and Second Minister of Finance Lim, and
Second Minister of Trade and Industry Yeo.
I went on to Manila and called on the Mr. Caday, who is the Acting Secretary
for Foreign Affairs. He is also the Secretary of Socio-Economic Planning, and
of the National Economic Development Authority (NEDA).
We were very pleased with the reception that we received at these meeting, and
by the frank discussions that we were able to have. Canadian bilateral
assistance in Indonesia was well received. It received front page coverage --
not only in Indonesia, but also in Vietnam, Malaysia and Singapore.
In Manila, I met with executives from the Asian Development Bank -- the
directors that are in charge of each country -- to assess the situation. In
Indonesia and Manila, we discussed the forest fires as well as the economy. At
that time, the fire was raging fiercely in East Kalimantan, and a resumption
of the dry season was causing a lot of trouble there. CIDA is preparing to work
on that issue with other donors and with Indonesia.
Dramatic and historical changes have taken place since I left Indonesia. This
is due to massive demonstrations by students and other advocates, followed by
tragic violence and bloodshed in Jakarta and elsewhere. Last week, this led to
President Suharto's resignation, and the investiture of former Vice-President
Habibie. President Habibie has appointed a new cabinet, and declared his
commitment to reform, including the holding of general elections. Canada
welcomes this commitment by the new Government of Indonesia, as it will
provide an opportunity for the country to launch genuine political, economic,
and legal reforms that meet the democratic aspirations of the Indonesian
The release of political prisoners began this week, and there are other
encouraging signs that President Habibie and his government are committed to
reform. It has been reported that President Habibie is working in a reform
council with leading advocates of reform such as Amien Rais, and that the
Indonesian Government has lifted a ban on independent trade unions such as Mr.
Pakpahan's Indonesian Prosperity Trade Union. The Information Ministry is also
abandoning the practice of revoking the publishing licences of press
publications critical of the government. Further, President Habibie and other
government ministers are asking their relatives to resign government and
legislative positions obtained through family connections.
Canada applauds these moves, which will help to restore international confidence
in Indonesia as a country committed to setting a new standard of openness,
transparency and democracy for its people.
It is not Canada's place to prescribe the steps that Indonesians should take to
advance the necessary reform agenda. There are, however, several elements that
we consider to be important to the process. These include: the release of
political prisoners, the revision of laws on elections, political parties,
subversions, and independence of the judiciary, free and fair elections as soon
as possible, and investigations into allegations of misconduct by the police
and security forces during the recent demonstrations. All of these have been
carried out by the government.
The implementation of economic and financial reforms, such as the introduction
of competition into the economy, is important, and it was agreed to with the
IMF. The Indonesian government needs to carry out these reforms. The early
ratification of international human rights instruments is desirable, as is a
political settlement in East Timor that is both just and internationally
acceptable. These three points are important issues that must be dealt with.
Let me share the feelings of ADB executives with you, expressed to me during my
meeting in Manila. They feel that, although Malaysia may not be as involved in
foreign borrowing as other countries directly impacted by the financial
crisis, it may be most at risk should Indonesia take a turn for the worse.
They feel that Malaysia has a much greater investment in Indonesia, just as
Singapore does. They do believe, however, that Malaysia could have stronger
monetary backing, and that it should be recovering from the recession in two
or three years.
The economic situation in Korea should be fine in three to five years. The
implementation of the IMF package is helping to turn things around. The demise
of the Korean economy means that no single country has either borrowed heavily
from Korea, or significantly lent to it. Korea's loan was spread amongst the
other countries, so no one tried to take ownership of the Korean problem.
Therefore, it must fight harder to get support from the IMF.
Let us consider China. The experts in ADB feel that the macroeconomic situation
is good, and that it should be able to hold out against the depreciation of
the Chinese currency. They feel that China would be able to withstand the
The ADB experts feel that Thailand has consolidated, and that it is on the road
to recovery. In spite of the crisis, many international players have not
reduced their involvement in Thailand's economy, and many joint venture
enterprises are turning their attention to the export market. Specifically, a
few years ago Japanese investments in Thailand started to target the
manufacture of products for export purposes rather than for domestic
Even with the economic crisis, food production is still very strong, and the
drought has not hurt Thailand as much as it has Indonesia. Owing to this, it
is felt that social unrest will not be a problem in Thailand.
Of the affected countries, the Philippines is the least impacted by the economic
crisis. Even in the midst of the economic crisis, it still has positive
employment growth. About $7 billion U.S. is remitted from overseas workers,
and another $7 billion is coming into the country, although not officially.
The ADB officials do not feel that there would be any social problems in the
Senator Andreychuk: You said that you had frank discussions with the Indonesian
regime, but you have not elaborated on that. At that time, what was the
Government of Canada's position vis-à-vis the President of Indonesia?
We know what your expectations of the new government are. Did you have the
same discussions with the previous government?
Mr. Chan: Yes. Actually, our discussions began before the last trip. In 1996 I
went to Manila for the APEC Summit meeting, and I had a long discussion with
the Minister of Foreign Affairs. Canada pushed for the release of political
prisoners, a political settlement on East Timor, and judicial reform. At that
time we even talked about the Human Rights Commission, which was started there
with our encouragement.
On this trip we talked with President Suharto, and we appealed for political
reform. We also asked that the reports of missing students be investigated. I
also met with the Minister of Justice, and I offered our support for judicial
reform. We had a very frank discussion about the lack of transparency in the
legal process. The Minister of Justice was a professor. He believes in reform,
and he gladly accepted the initiative from us. I am very glad that he has
maintained that portfolio, because he is a very open person. He believes that
a lot is wrong within the country, and that it needs to be reformed.
Senator Andreychuk: Much of the difficulty was with the Suharto family and the
cronyism that went on. Did you address that as a prerequisite for your support
for IMF moves in the country?
Mr. Chan: The Human Rights Commission was established in 1993, and it quickly
became the centre of attention. It became a sort of ombudsperson for all
complaints about the government.
There had been a sense of the freedom of the press, which openly asked for
Suharto's resignation. The students and the academics openly accessed outside
information about the developments occurring inside the country. We believe
that the integration efforts with the people of Indonesia were making some
fundamental changes within the country. Therefore, we did not want to be too
confrontational in our presentation.
Senator Andreychuk: Political change was occurring under Suharto?
Mr. Chan: Yes. It was not systematic change, but the press was allowed some
freedom, and the Human Rights Commission was established. These were positive
government initiatives. The Human Rights Commission was able to attend the
police academies and military schools to talk about rights issues to the
students. Such opportunities would help to ferment change from within.
Senator Andreychuk: Would you not agree that the economic crisis brought about
the fundamental political changes in the country?
Mr. Chan: It is a blessing in disguise that it happened, but that strengthens
our argument. The economic reform integrated the Indonesia economy to the
global economy. President Suharto and the Indonesian government could no
longer ignore the concerns of the outside world. They had to change.
Senator Andreychuk: I do not understand you. Do you feel that the economic
crisis actually brought about the political change?
Mr. Chan: I believe so.
Senator Andreychuk: It was not the limited freedom of the press, and the
establishment of a Human Rights Commission?
Mr. Chan: The biggest change is that individuals understand their rights, and
they are now able to stand up against the government. That is the major element
of change. If people do not stand up for themselves, if they do not understand
their own rights, and if they are not financially independent from the
government, no economic crisis would help them. The people must demand change.
Senator Andreychuk: Your assessment is interesting. Everything that I have read
and everyone that I have talked to indicates that the rioting and change came
from the frustration and desperation of the people. No one else has suggested
that this came about because the people understood their freedoms, and had
access to them. You are the first to state that significant change occurred
under Suharto, and I want to know where you base that assessment.
Mr. Chan: The significant change is in the thinking of the people. Independent
institutions were established -- think-tanks, academic groups, and the Human
Rights Commission. It is amazing how important a factor the Human Rights
Commission is in the whole process.
In the beginning, Indonesia committed to establishing the Human Rights
Commission in order to avoid a resolution to condemn its human rights record.
The NGOs thought that the west had sold out, because the commissioners were
appointed by the government. They are reputable people, however, and they
began to speak out and to take the job very seriously once they had authority
inside the Human Rights Commission.
When I first visited Indonesia, I met with a legal network which was a
revolutionary group under the auspices of a human rights group. At that time,
the members of the group were very critical of the Human Rights Commission.
When I met with them on my most recent trip, I asked them how they felt about
the performance of the Human Rights Commission. They told me that it is more
than a Human Rights Commission; it has become an ombudsperson.
Anyone who encounters an injustice goes to the Human Rights Commission, and it
has tens of thousands of cases into which it must look. Its existence gives
people a sense of their rights, and it is amazing how much that propagates
into the society.
Senator Bolduc: When I was in Indonesia in 1972, I mostly saw military people.
I got the feeling that the country had a very good military establishment. I
wonder if the political change from one general to another will really
accomplish the changes that seem to be desired by the people. It is a huge
government, it is a huge bureaucracy. The replacement of one general with
another is not a political solution that will bring about democratic
How do you see changes coming in? We realize that a few moves have been made,
but the changes must be more profound than that.
Mr. Chan: That is right. We are still watching it very closely and carefully.
It is very difficult to predict the intentions of the generals, but there must
be some kind of power struggle within the military. Suharto must have yielded
when he can see that his supporters in the military had been lost to the reform
forces, or to the other forces. It is difficult to say whether or not the
opposition in the military came from reformers.
If you look at the military establishment, the younger military people generally
have much better training and education than the older ones. I met with one
of the visitors from Indonesia, a director general within the government, and
I pointed out that his country was facing a tough time. His response surprised
me; he said that he was going back to be with the students. When he was a
student, he was part of the student movement, and he was arrested. Now he is a
director general within the government.
The new generation has changed because Indonesia has opened up, and the
integration of the country has continued. The only way to help a country
change is to help the people change.
Senator Bolduc: Is there a leader in the social movement who could eventually
progress to the top? We all remember what happened in Poland, where there was
a strong union leader. It was the same situation in Czechoslovakia. It is not
so obvious that the social organization in Southeast Asia will produce a
Mr. Chan: I agree. It is difficult for us to see who will emerge as a leader.
There is no obvious reform-minded leader who would be able to take over the
In Indonesia there are open-minded people both inside and outside the
government. For example, the Minister of Justice was drafted into the cabinet
by Suharto. He was very reform-minded, as was the Economic Coordinating
Minister, who was in charge of negotiating with the IMF.
It is nice to see this new generation moving up into authority. It is not always
a good thing to have one strong man take over, however. Deng Xiaoping came
after Mao Zedong, and he was supposed to be more open-minded. He had absolute
power and a strong personality, however, and he started to believe that he was
the only solution for the country. A group leadership in China only began to
emerge after his death, and group leadership is not necessarily a bad thing.
Senator Bolduc: Is it possible that such leadership may come from outside the
military? The military forces were not on the socialist side.
Mr. Chan: I do not have the information about the military to be able to say
who is a reformer and who is not. Even within the military, however, some
people have a conscience, and they know that things must change. Indeed, as I
travelled across the region, all the politicians in other countries told me
that the military entrenchment in the economy is Indonesia's worst problem, and
the most pressing difficulty for the government.
Many of the politicians told me that Suharto might not be able to fix the
problem, and his successor may not be able to, either. Indonesia still faces a
lot of challenges. The country's future depends upon the resolve of the
people, and also the resolve of the reform-minded leadership. They are
certainly not home-free, but it is nice to see the changes that are taking
Senator Grafstein: You referred to the East Timor situation. It has been a
bloody civil war, and it has lasted for years. You believe that the release of
one of their leaders from prison would contribute to a peaceful settlement. Is
that war continuing? Is it still taking lives?
Mr. Chan: The East Timor situation fluctuates. At times, it is quite peaceful,
and there are no confrontations. It was very peaceful before the currency
crisis. The triparty negotiations are ongoing, at least bilateral negotiations
between Portugal and Indonesia. There is also a parallel meeting among the
East Timorese, to try to find the best solution for the future of East Timor.
Canada encourages a triparty settlement, and we encourage the Indonesian
government to give more autonomy to East Timor. At the time, we believed that
the issue could only be addressed politically, as opposed to with violence.
During this time of political trouble, we are trying to help the East Timorese
rebuild and educate themselves. Our focus in East Timor is on education and
economic development. Approximately 60 per cent of our aid money goes to East
Timor, but we also recognize that the political flexibility in Indonesia at
the time would not allow that kind of change. True democracy in Indonesia would
allow a settlement to be reached with East Timor.
Senator Grafstein: As Canadians, we may applaud our government's efforts, which
are all positive, but we do not have that much political leverage with respect
to the Indonesian government. Traditionally, we have strengthened our political
views by working with a multilateral group, where we share common interests.
What steps has the Government of Canada taken to be part of a regional,
multilateral activity, one that would be much narrower than the APEC
situation? APEC covers the world -- we are not talking about that. What
countries would share our interest in facilitating your progressive agenda?
Where do we stand with respect to Australia and New Zealand, who have
traditionally been close to the Commonwealth? Has the government given any
thought to that as a strategy?
Mr. Chan: I agree that Canada is not a huge power. We are a middle power in the
global issue. However, because of our strength and our memberships in
organizations such as NATO and the UN, and also because we are objective in
pursuing our policies, and we were never a colonial power, we usually have
more power than we exercise.
An example of this would be the fact that our ambassador, Gary J. Smith, was
invited to witness the release the release of a prisoner. No other ambassadors
were invited to do that. Canada was the only country invited to participate in
the process, which says a lot about our leverage. We do not go in with a big
stick, but we do gain respect. They know that we are concerned about human
rights issues, so they want us to be there when they do the right thing.
Canada does work with like-minded countries, such as Australia, New Zealand,
the United States, and other European countries that are concerned about the
region. We exchange notes, and we talk about our common positions on the issue.
We continue to exercise our influence in the ASEAN regional forum, which is a
regional structure that deals with security issues. Our dialogue partner this
year is the Philippines. We continue to talk to other ASEAN countries that have
much more open and transparent political systems, such as Malaysia, Singapore,
and Thailand. We encourage them, and challenge them to use their influence on
Indonesia to ask for change.
The same thing happened in Myanmar, which used to be Burma. Every time that we
meet with the ASEAN groups, we discuss their efforts in Myanmar. There was
some concern that the acceptance of Myanmar into ASEAN would tarnish that
organization's image, because of the lack of human rights in that country. We
also talked about how change could be introduced in Myanmar. We obviously do
work inside these multilateral institutions to exert our inference.
Senator Losier-Cool: In your presentation, you mentioned that it is not
Canada's role to decide what measures must be taken. In the letter that you
wrote after your visit to Jakarta, did you impose any conditions on Canada's
foreign aid contributions?
Mr. Chan: There is a $7 million fund targeted for democracy development and
human rights issues in our foreign aid program. It is a fund dedicated to those
issues, and I expect to draw upon it. Diane Marleau is the minister in charge
of that, and I encourage her to allocate some of those funds for this kind of
There are no strings attached to our bilateral package to Indonesia. It deals
primarily with humanitarian issues -- wheat sales, medical supplies, and basic
import necessities. We do not generally go into a country and say that things
must be done a certain way. We always state Canada's concerns, and what we
believe to be the right thing to do. That objectivity allows us to have a very
frank dialogue with the host country, and we are respected.
Senator Losier-Cool: Last week I was pleasantly surprised to hear Paul Martin
talk about a program for women and children. Will that be included in the $7
Mr. Chan: The issue of the status of women is a priority for CIDA, but it is
not inside the development fund for democratic and human rights. It depends
upon how the programs are structured. A program might deal with both women's
issues and institution building. In that case, aid might be able to come out
of that fund.
Senator Stollery: Approximately 39 years ago I had the misfortune to visit what
is now known as East Timor. It was a Portuguese prison colony at the time, and
it was possibly the most dreadful place I have ever visited.
As I was moving from Dili to Baucau, I remember that one really spent one's
time with Chinese traders, because even in Portuguese Timor they ran the place.
We have all seen the pictures of Chinese traders being burned out in
Indonesia, Java, and Sumatra. Even today the Chinese community in Indonesia is
really the major economic community.
We remember the terrible massacres in Sukarno years ago. What is the situation
there? Is that settling down? Are those people at risk?
Mr. Chan: The Chinese who can afford to leave began to do so about a year ago.
The biggest problem is that there are lots of Chinese there, and most of them
are not rich. They might run a small business, and then they become the target
of a riot. It is a very sad thing, and the problem can be traced back to the
monopolies -- how the government works to control the economy.
We support the IMF initiative because it tries to dismantle the government
monopolies -- it goes to the heart of the problem. It is difficult to deal
with the military on this, because we are taking their bread and butter away.
The new regime is taking reform seriously, because the IMF would not advance
any funds until it had seen reforms. They negotiated twice before, and Suharto
was told at the time that it was his last chance. If the government does not
go through with reform, that will be it. That is the reason for the new
government with the reform-minded people.
Senator Stollery: Therefore, the Chinese traders and the large Chinese
population are much safer now than they were during the 1960s, when the
Chinese communist party was wiped out.
Mr. Chan: Approximately 200,000 died then, so it is comparatively smaller in
scale this time.
The Chairman: I wish that we had more time, and that we could widen our focus
beyond Indonesia. We may want to ask you back in the future, and we hope that
you would accept our invitation.
Mr. Chan: I would like to acknowledge the support of John Donaghy, the Director
of the Southeast Asian Division.
The Chairman: Our next witness is Dr. Rudner. He was educated at McGill
University, Oxford University, and at the Hebrew University of Jerusalem,
where he also taught. He was a senior research fellow at the Australian
National University in Canberra. He has lectured at many universities in
Japan, Southeast Asia, Australia, Taiwan, Europe, South America, the United
States and Canada, and he is a past-president of the Canadian Council for
Southeast Asian Studies.
We have seen heavy movements of capital around the world. Money goes into a
country such as Indonesia. There are changes in the economic structure. A
certain expectation is created, and then, for reasons which can be quite
remote from a country like Indonesia, the money is gone.
When we had witnesses here dealing with security in the South Asia area, they
said that socio-economic factors might very well be the most important
destabilizing consideration. I thought that we ought not to leave this
particular reference without having heard from an authority on the
relationship between economic destabilization and political stability. Please
Mr. Martin Rudner, Professor of International Affairs, Norman Paterson School
of International Affairs, Carleton University: As a political scientist, it is
a privilege to have been invited here to discuss the political consequences of
the economic catastrophe that has impacted on the countries of Southeast Asia
and other East Asian countries.
I will focus my remarks on Indonesia, but I will also refer to some of the
other countries, because that will help us to understand the likely trends in
Indonesia, the probable outcomes for the region as a whole, and the
implications for Canada.
I will attempt to put into context the relationship between the financial crisis
and the political consequences that we have seen in Indonesia and in these
other countries. The key lies in the flow of international capital. The
countries of East Asia and Southeast Asia have experienced very high growth
rates over a period of 30 years -- we are talking about economic growth in
excess of 5 per cent, and in excess of 7 per cent in some countries.
This growth has attracted a large flow of international capital to these
economies, as investors sought to profit from the dynamic competitive
advantages offered by them. Coincidentally, they contributed additional
investment resources for Southeast Asian development. Therefore, there is a
high degree of synergy to this flow of capital.
There were two aspects to this capital flow. The first was direct foreign
investment; companies in other Asian economies, in Europe, or in North
America, invested in the establishment of plant and production capacity in
Southeast Asia. For the most part, this capital is stable -- there is a plant,
factory, or equipment. It is producing, and in that sense it is not volatile.
The flow of direct foreign investment to the Southeast Asian economies also
brought about a challenge, however, because it created a sense that
increasingly large components of the economies were being occupied by foreign
firms. While these countries were experiencing high growth rates, saving
rates, and investment rates of their own, there was a concern that
international enterprise would overwhelm domestic enterprise. As a result, a
so-called "Asian model" was introduced, whereby governments
collaborated with their private sectors, and firms in the private sectors
cooperated together to develop a sufficiently strong domestic private sector
presence in these expanding economies.
How did this work in practice? The mechanism was the banking system. Governments
sent a signal to their banking systems. First, they established new and
enlarged banks, and encouraged the banking systems of their own countries --
Thailand, Malaysia, and Indonesia amongst others -- to borrow abroad from
international banks, private sector to private sector. Ostensibly, there was no
government intervention. The domestic banks were then to lend the capital that
they had borrowed to domestic entrepreneurs.
These private sector bank-to-bank loans are highly volatile. They tend to be
short term, and in that sense, they are present when the international banking
community has confidence and credibility in the local banking system, and they
can fly away when it does not. Therefore, we have the stable flow of direct
foreign investment, and the more volatile aspect of the lending from banking
system to banking system.
What was the purpose of this banking system approach? The answer is that the
government acted as a gatekeeper. The government gave domestic entrepreneurs
permission to open banks. The government in effect directed the banks, and it
directed them to lend to selected borrowers in the domestic economy. The
government had a very powerful influence, because it was the gatekeeper of the
domestic economy. It created a patron-client relationship in the domestic
What does this mean in terms of the political economy of the Southeast Asian
countries? First, it created a role for the state as the gatekeeper of the
private sector. The private sector was growing, but the state determined who
got capital and when. It created cronyism in that sense. Governments tended to
favour people who favoured the government. It was an exchange of resources for
The second dimension was that it gave the government a role as the guardian of
social stability. While governments were sponsoring this private sector style
development, every single government also took major responsibility for the
welfare and well being of its rural economy. This goes back to the fears of
the 1960s which Mr. Chan mentioned, when there was a concern that a Maoist
Marxist uprising in the countryside might overwhelm the cities. The response
in each Southeast Asian country was the creation of major poverty alleviation
and rural development programs aimed at the rural economy.
Rural prices tended to be kept high, credit was subsidized, and there was major
investment in the rural social and economic infrastructure. This continues
today. The unrest which we have seen throughout Southeast Asia has been urban
unrest, not rural unrest. These are societies where the overwhelming majority
of the population is still rural, and where most of the poor are still in rural
and agricultural occupations. In that sense, the government succeeded in
poverty alleviation and rural development. Where it failed was in the
development of the instruments of a modern state for the urban economy.
Let me give you a sense of where these failures occurred in Southeast Asia and
why, in a political context.
The first of the great changes was the emergence of a middle class right through
Southeast Asia. For the first time in Southeast Asian history, a class of
people emerged who were dependent on neither agriculture nor the government
for their prosperity. The emergence of this middle class took place across the
region. Even though it originated in patron-client relationships, the clients
ultimately felt that, while the patron gave them the resources, their
prosperity was a result of their own initiative, and this gave them autonomy
vis-à-vis the governments.
The emergence of the student movement was more significant. The children of the
patrons' clients went to the universities. These were the elite universities
in their society; Universtas Indonesia, a state university which is the most
prestigious university in Indonesia, and Trisakti University, a private
university, which has very high fees. These were elite students in both a
social and an academic sense, and they were taking a very different role in
society. In effect, they were saying that the old system of patron-client
relationship was korrupsi, and they demanded the same standards of excellence
in competition for society that they experienced as students in an elite
The students voiced the main challenges to the status quo in Thailand, Korea,
Malaysia, and especially Indonesia. They demanded a society that would be open
to their intergenerational creativity. What they ask for, in a certain sense,
is a move from gerontocracy to democracy.
The second major impact has been on the weakness of the state. In each of these
cases, we have soft states. Economic and social development occurred at a very
impressive rate throughout Southeast and East Asia, but the state lagged
behind. In part, this was the fault of the international community. We tended
to believe that the development of market-oriented systems required
deregulation and the absence of government.
A market-oriented system demands a transcendent government to keep the system
honest, however, and to keep it functioning competitively. This was not seen
to be the case, and state institutions tended to suffer weaknesses as a
result. Their development and capacity for building lagged far behind the
abilities of other institutions, including local government. In effect, local
government is the basis of any democratic system, but it is weak everywhere in
Previously, parliaments and legislative systems tended not to have the same
capabilities as other institutions on the administrative side of government.
Electoral processes were underdeveloped, and political party systems in all
cases were compromised by patron-client relationships.
In fact, some would say that the army was that the only strong national
institution in Southeast Asia was the army. The army plays a very different
role in Southeast Asia than it does in Canada, and it even differs from the
Western European experience. To borrow from P.J. Vatikiotis talking about the
Middle East example, "Dans l'armée demeure la conscience de la
nation." That is, the army has the consciousness of the nation. In
Indonesia and in many other cases, this is true, not only in a moral sense,
but also through direct activity in social programs. The army is the
institution which delivers credit to the farmers, imports rice to feed the
people, and markets domestic food stuffs to the urban economy. Those
components of the economy are considered far too important to leave to the
civilian sector and to a weak bureaucracy.
Another area of political consequence is the fact that economic development in
Southeast Asia does not overcome the primordial fragmentations of society. We
tend to forget that societies are not always well-structured and seamless.
Southeast Asian societies bring to mind something to which Shmuel Eisenstadt,
the Israeli sociologist, and Walker Conner, the American political scientist,
called attention to 35 years ago. In deeply fragmented societies, improvements
in economy and in social systems do not necessarily bring together the whole,
but strengthen the components, and may strengthen them against the centre. For
example, in Indonesia tensions of ethnicity have come to the fore -- ethnic
Indonesians versus ethnic Chinese. The same is true in Malaysia and elsewhere.
We see religion as an issue of immense tension in Indonesian society. This is
also true in other societies -- Buddhist as well as Islamic -- where powerful
forces struggle between a secular state and a religious one. Within religious
states the struggle is between moderate Muslims and Buddhists, or radical and
militant Muslims and Buddhists. Further, some of those who put themselves
forward as political reformers in Indonesia are people who would prefer the
Iranian concept of revolution over the French one.
Tension exists on a regional basis, and this is especially true in Indonesia.
There are over 3,000 islands in the country, and they have very strong
traditions of local autonomy, local separation, and local economy. East Timor
is not the only region to challenge Indonesia's unity. Acheh, Sulawesi, Irian
Jaya, Madura, and Kalimantan also do so, to a degree. Tremendous regional
tensions struggle against the integrity of the country.
When the centre is weak, we do not tend to get a simple articulation of all of
these competing interests -- we tend to get an explosion. There is an
explosion of economic violence, similar to the one that we saw ruin one
quarter of Jakarta. The violence tends to follow the primordial fault lines of
society. In that case, it was a pogrom against an ethnic Chinese community who
were innocent of any malfeasance in Indonesian political, social or economic
The problem of legitimacy is another dimension. All of these governments
developed their legitimacy around the concept of development, and it did work
for 30 years. Legitimacy is development, development is growth, and growth is
improved well being. All of this was true. When economic growth faltered,
however, the basis legitimacy was brought into question. The legitimacy was
challenged from outside by people like the students, who called korrupsi and
said that the practice of patron-client dealing had brought down the system.
The legitimacy was also questioned by the supporters of the patron-client
practice. People who had previously benefited found themselves with immense
debt. They did not have the assets to remedy that debt, and the soft state was
unable to assist them.
If the state has failed and development has failed, the Bismarckian question is
"Why should I obey?" To put a wrinkle on it, "Who should I obey?"
This was private debt, but the IMF solution, and the one which the
international community imposed on each of the Southeast Asian countries,
required taxpayers to pay off the private debt. These were the private banking
system's debts; it was not a failure of the state planning system. The private
sector system had accumulated massive debt, however, and it became incumbent
upon the state to reimburse the IMF's loans to the private banking system. In
effect, the debt was socialized. The pertinent question for the challengers
became "Why should I obey, who should I obey?"
There was a leadership problem. Asians tend to hold the view that leaders enjoy
the mandate of heaven. Benedict Anderson, probably the leading scholar of
Indonesian politics, pointed out that there is a Javanese concept of power.
Power is charismatic, but when charisma fails -- as when development fails --
there is no substitute for legitimacy. In Indonesia, the real question now will
be how legitimacy in politics is defined for its current leaders.
Those who challenge legitimacy are not challenging the constitutional order.
The constitutional order is accepted, even by its challengers. What is in
question is the legitimacy of those who occupy places of power in the
We will wait to see how Mr. Habibie does. He is not a military man. As an
engineer, he set up the Indonesian aircraft industry based on his experience
working for Messerschmitt Bolkow Blohm, or MBB. He managed to finance the
Indonesian aircraft industry by borrowing massively from the state banks, but
he is a civilian. He lacks a political base and support, and he does not have
the support of the army. The army was unhappy with him for diverting resources
to his industry from the military's preferred investments in other industries.
What is the political agenda, and where could Canada fit in? Firstly, we must
recapitulate the problem. These are robust -- or potentially robust --
economies with fragile societies and soft states. How do we do build states,
while also working at nation building and economic and social development?
The challenge is state building. One must pursue democratic political
development in a way which is congenial to political culture in those
societies. When one speaks, for example, of democratic participation, rule of
law, representative and responsible government, and efficient and effective
public administration, one must see it in terms of a political culture which,
first of all, values these things. There is no question that people value
them, but they have no experience with them. The problem is that primordial
pressures in society militate against democratic political development. How do
we pursue democratic development so as to internalize it in political culture
and in state building?
There is no answer to that question. I suggest, however, that Canadians, who
have engaged in this process for 100 years, could perhaps contribute to the
abilities of Southeast Asian countries to identify appropriate solutions for
themselves through our learning example.
The Chairman: You have focused primarily on Indonesia, but would it be correct
to say that what you have said could, with appropriate modification, be applied
to several of the countries in the area?
Mr. Rudner: It could be applied to each of the ASEAN countries, and also to
countries such as Korea, Taiwan, China, and even, to an extent, to Japan.
The Chairman: You said that these economies could potentially be robust. How
much of an exaggeration would it be to say -- whether we are exporters of
money or exporters of technology -- that we have introduced a kind of western
economy into social and political circumstances which are not suitable for
that particular economic model?
Mr. Rudner: I do not agree with that assumption for several reasons. Firstly,
the concept of a western economy presumes that the Southeast Asians themselves
were not, in fact, an international trading economy before the Europeans came
to the region, or while they were there. Historically, these were trading
societies when Europe was in a feudal period.
Southeast Asian traders -- especially Indonesians, and the overseas Chinese
communities in Southeast Asia -- are traders and investors par excellence,
internationally and regionally. If you were to read the histories through the
prism of their experience, they would say that the Europeans came to Asia to
suppress local trading systems and to impose unfair competition. They liberated
themselves. In Indonesia, a revolutionary war succeeded in achieving that.
They do not see the international trading system as alien or hostile to their
aspirations -- quite to the contrary. They see themselves as comfortably
engaged in a global economy. The problem is one of state building. In every
single case, the difficulty is that these nation states do not have pre-colonial
roots. This is true even in Thailand, which some people think is an exception
to the rule. These nation states are post-colonial creations, and they
underwent immense turmoil during the 1940s to the 1960s.
Indonesia knew constitutional liberal government, it knew guided democracy, and
it knew NASAKOM, which comes from nationalisme, agama -- which means religion
-- and komunisme. It encountered massacre, then it went into new order. Over
50 years of independence, it has not had a peaceful transition in government,
which is remarkable.
In Thailand, one could count the coups d'état and threatened coups d'état
over the years. We do not have yet the consolidation of proper states in
Southeast Asia. The weaknesses are on the political side, but the achievements
are on the economic and social side. That is the great developmental disparity
confronting the region.
The Chairman: You started off by telling us that the money went to the domestic
banks when it went in, and then the banks, guided, I suppose, by friends,
decided where the money would be invested. Then, of course, the financial tide
receded. When I referred to a western economic system, that is what I meant.
Perhaps I should have talked about a western financial model.
Senator Grafstein: We have been trying to grapple with this. The Chairman and I
have had an intellectual debate over whether hot money is good or bad as it
applies to developing or underdeveloped economies. I just do not know. However,
you raised something that tends to give some support to a theory that I have.
The fastest way for Canada to help developing economies move towards a
democratic system is to increase the middle classes in those economies as best
There is no question that the middle class was increasing quite rapidly in
Indonesia. The middle classes have high expectations, however, and when their
expectations are lowered you have revolution. This revolution is not a result
of the masses, the aristocracy, or the cronies. It occurs because the
expectations of the middle classes are being lowered or disregarded. The
problems in Indonesia come from private money, middle class losses, and
revolt. Where does the revolt come from? It comes from middle class students,
just as it did in China. All of this was set out in a book called by Eric
Hoffer called The True Believer: Thoughts on the Nature of Mass Movements.
We must determine if the continuation of the hot money is the best fix for
Indonesia, because it will re-establish a growth pattern that will allow the
middle classes to continue to expand. Alternatively, perhaps we should do what
President Hoover did, which was to tighten up in a deflating regime and in a
shrinking economy. In other words, do we take Roosevelt's theory or Hoover's?
It is a political science question as much as it is an economic one.
Mr. Rudner: The essence of the problem originates in something which any banker
would have said; you do not borrow short term and lend long-term. The bankers
in Southeast Asia did not think or could not believe that these international
loans were not going to be rolled over. They thought that they were permanent,
and that growth was a natural phenomenon in the region. After 30 years of
growth, it was believed that it would continue.
The desire is to turn loans over quickly, in order to take advantage of things
like falling international interest rates. If you borrow in 1993 at a certain
per cent, you borrow again in 1995 at a lower per cent, and again in 1997 at a
lower interest rate. You also take advantage of exchange rates, by shifting
from Japanese currency, to U.S. currency, to the Canadian dollar. This seemed
to work, but you cannot borrow short term and lend long-term.
What is the problem of creating a middle class in Southeast Asia? The problem
is that populations grow -- and this is back to Malthus. Geometric progressions
and middle class aspirations grow at logarithmic progressions. Resources grow
at arithmetical progressions. Even with high rates of savings -- in Malaysia 40
per cent of GDP is saved, in Singapore, 50 per cent of GDP is saved, in
Indonesia up to 35 per cent of GDP was saved. Massive rates of savings growth
cannot keep up to the logarithmic growth of aspirations, so you borrow from
There are two solutions. One is domestic, which is that a BMW is not a
prerequisite for membership in the middle class. One could be middle class
with less. In fact, there was an extravagance to middle class development in
Southeast Asia. During the emergence of the middle class, middle class
students were living more lavishly than Canadian university professors are able
to. Middle class business people in Southeast Asia were living extremely
extravagantly. It was the world's largest market for the finest cognac,
champagnes, and products of the European fashion houses. This is middle class,
but it is not necessary.
In his history of Britain's industrial revolution, Lord Acton pointed out that
the regional entrepreneurs of the industrial revolution lived extremely
modestly for generations. The Southeast Asians did not learn that.
The second element of correction must be that middle class does not only mean
personal incomes -- it also means the development of institutions of state,
society and community. These things were left grossly underdeveloped in the
region. That is another topic which would be worthy of our consideration if
our question concerns the nature of appropriate Canadian development response,
again from the Canadian experience in the 1950s and the 1960s.
Senator Stollery: Trying to forecast the future is a futile business, and the
conclusions are almost inevitably wrong.
Your observation that the wealthy people in Southeast Asia showed no restraint
in their personal lifestyles is an important one. Compare that with Wedgewood,
who had his own leg chopped off because it was interfering with his business.
To do his business he had to ride along road roads in carriages, and his leg
was bothering him, so he had it amputated. This would not be the case with
many of the people about whom we are speaking.
With the exception of Japan and Korea, the economies in the countries to which
we are referring are not run by the indigenous population -- they are
overwhelmingly operated by overseas Chinese. That was the cause of Singapore's
break from Malaysia. What are your thoughts on that?
The Javanese and the Burmese do not control their economies, nor do the
Malayans. Each of the Indonesian generals was backed by a Chinese family. One
of the players in Bre-X was an Indonesian citizen, but he was really Chinese.
He changed his nationality for business purposes. What are your observations
on this characteristic, which is unique to these countries?
Mr. Rudner: This is an interesting theoretical discussion which is analogous to
the experience of Quebec from the early 1930s through the Quiet Revolution of
There is a high degree of congruence between ethnicity, social structure, and
economic structure in colonial society. Malaysia is the most telling example
of this. The society was structured so that the peasants were predominantly
Malay, the labouring class in the salaried sector was Indian, the
entrepreneurial class was Chinese, and the corporate elite were British. The
school system functioned in four languages, English, Tamil, Chinese and Malay.
Each group also had a different curriculum, so that a peasant was taught to be
a better peasant, for example. He could not become anything else.
After independence there was a major transformation. In Malaysia they referred
to it as the new economic policy, and it had a dual purpose. The first was to
eliminate poverty, and the second was to restructure society so that ethnicity
was no longer congruent with economic function.
In Malaysia and elsewhere, two things happened. Firstly, there was the emergence
of an indigenous, non-Chinese middle class. In almost every case, these were
clients in the patron-client sense of the directed credit through the banking
system, however, and that is the problem. It is the only way that they could
get capital. The child of a peasant could only get the capital to set up a
business if the bank would give him or her a loan. How many Canadian banks
will loan anything to the child of a peasant? In Malaysia, two banks will.
However, if the government says, "We now have a policy which says you
must and will guarantee it," money will be lent to children peasants who
will establish businesses, so they are constantly in a protected sector. In
that sense they are a niche economy, even if that niche grows.
In Malaysia, there are more Malay millionaires today than there are Chinese
millionaires. They are both in business. The problem is that one depends on a
degree of protection which the other does not have, and that creates a totally
different outlook vis-à-vis the market, personal consumption, and
When you speak of the Chinese domination of the economy, you must not forget
that all of these economies are still predominately agricultural economies,
and that the agricultural sector is indigenous almost to a person. The
agriculture economies are not subsistence economies. In fact, they are very
efficient, and these countries are major exporters. Malaysia is the world's
largest exporter of natural rubber. Thailand is the leading world exporter of
rice. Indonesia feeds itself. In that sense, one should not over-stress the
Chinese presence in the trading economy, because it is not the predominant
component of the economy. The industrial economy may be shared with Europeans,
Japanese, and other foreigners, and the local Chinese are prevalent in trading,
but the agriculture economy is indigenous, and the agricultural economies are
Senator Stollery: When I was last in that part of the world, I was with a very
prominent Canadian businessman who deals in all of the countries except Japan.
We went through each country, and I recalled that the Chinese were never
allowed west of Bengal, or out of Calcutta where they were mainly shoe repair
people. As soon as you went into Burma, however, where they were competing
with the Indians, the Chinese owned everything. This was true throughout most
of the Far East, including French Indo-China. I asked my friend about that,
but he told me that all of their business was done with Chinese companies, and
that the person that they had just selected to run their interests there was
Chinese. You do not share this impression?
Mr. Rudner: There is empirical evidence. The largest sector of the Malaysian
economy belongs to the national petroleum company Petronas, which is almost
Senator Stollery: It is protected because of government policy, however.
Mr. Rudner: Petronas has the same privileged position as Pertamina does in
Indonesia, or as Petro Canada does in Canada. Pertamina, the largest enterprise
in Indonesia, is almost totally indigenous, as is the aircraft industry set
up by Dr. Habibie.
Senator Stollery: Is there not a government role in the employment policies?
Mr. Rudner: Absolutely. In Malaysia you must hire people according to their
share of the population. Industrial legislation requires this. Americans would
call it affirmative action; they call it restructuring the economy to bring
about a situation where race will no longer coincide with economic function.
Major industrial concerns have emerged in all of these countries -- let us keep
industry separate from trade. Local shopkeepers can be of any ethnic group,
and the Chinese have a very strong presence both historically and
contemporaneously. When one looks at the industrial sectors, which in fact
produce the bulk of GDP and most of the international trade, those sectors are
not Chinese today, and they never were. During the colonial period they were
colonial, in the modern period they were the state-sponsored sector, and of
course there was the direct foreign investment.
For a variety of reasons, foreigners operating in Malaysia may feel much more
comfortable dealing with ethnic minorities than with Malays. Firstly ethnic
Malays and Indonesians are almost guaranteed jobs and promotions when they
graduate from university. There is a certain comfort level in seeing the end
of your career at the beginning of your career, based on your ethnicity. Chinese
do not have this option. They must forage for jobs in a competitive market.
They will go to foreigners, and they will seek employment with international
trading organizations, which is why they tend to dominate in international
Senator Corbin: An article called "The Social Contradictions of Japanese
Capitalism" appears in the June edition of The Atlantic Monthly. The
writer, Murray Sayle, argues that a severe social severe crisis lies behind
the bad economic news, and that he witnesses it daily in the Japanese village
where he lives.
This particular article it seems to agree with what you said, which was that
the achievements in a number of countries are on the economic side, but the
weaknesses are on the political side. The concluding lines from this article
seem to support what both you and Mr. Sayle are saying:
Japan needs to modernize not its all-too-modern industries, or even its rickety
financial system, but its society, so that more young people will earn enough
money to marry and start families in adequate housing, generating the
increased domestic demand (for which read "leading the fuller lives")
long promised by Japan and long demanded by its exasperated trading partners.
In short, Japan needs a social revolution inspired, for the first time ever in
its history, by ordinary people, in their own interest $
But public pressure for real reform is still slight. Today's aging Japanese,
formed by an antiquated, inward-looking, ultimately self-defeating system have
no idea how to change it -- or whether they even want to.
Do you agree with that? That is what you have been telling us.
Mr. Rudner: Yes, absolutely. Further, there are a number of additional points
which make that case. For example, it is remarkable that, 50 years after the
creation of a democratic government in Japan, government parties are still
fragmented and fractionalized, and have yet to consolidate themselves.
Japan's weakness and soft state are remarkable. We think of Japan as having a
strong administration which works in cooperation with Japanese business and
the promotion of Japanese exports. A very soft state is behind that strong
administration, however, and it is a soft state which is not capable of
responding to its own people at a central level or at a prefectural level.
Owing to this, many Japanese towns have minimum public infrastructure, minimal
social amenities. Housing permits are difficult to get. The soft state with
the strong and robust economy is a challenge for Asia.
Senator Andreychuk: You said that the middle class should in some way dampen
its expectations of conspicuous consumption. That may have been all right 100
or 200 years ago when we were more controlled. With today's technology,
however, are we not coming to a universal expectation of consumption? Much of
what you said about the social emerging middle class could be equally applied
to the former Soviet Union, and to the emerging states there. I would like your
comment on that.
To what extent did the IMF-imposed regulations contribute to this
destabilization, with the devaluation of the currency and the subsequent
inflation rate? While you have pointed to the internal banking system and the
internal system, there are those who argue, particularly in Indonesia, that
this massive political upheaval came about because the IMF has a role to play
in the negative consequences of what has happened. Further, it has been
suggested that the average Indonesian might be in a better position today if
solutions such as currency boards and more selective long-term impositions,
rather than outright IMF impositions, had been used.
Mr. Rudner: You have asked three questions, and I will respond to them ad
Firstly, you are correct when it comes to conspicuous consumption. Human freedom
means that I should be free to disburse my income as I see fit. One of the
problems was structural, however. This massive inflow of foreign currency,
whether through direct foreign investment or through bank loans, led to an
overvalued exchange rate for Southeast Asian currencies in every single case.
Economically, the problem with an overvalued exchange rate is that imports are
being subsidized. By running highly overvalued exchange rates, Southeast
Asians were subsidizing the import of luxury goods. There is absolutely no
reason for relatively poor economies to subsidize their imports.
You are also correct about the IMF. The IMF intervention brought about important
things, but it also had some negative consequences. In Indonesia, the worst
of those was the original decision to close 16 banks. The IMF was right to
insist that these banks had to be closed. The problem, however, was that the
IMF had no sensitivity when it came to the implications of this for a community.
The community's reaction to the closures was to pull its money out of those
banks, and to squirrel it away under mattresses. The perception was that, if
16 banks could close, more could close in the future. The banking system might
have been diseased, but the people did not know the source of the contagion,
and that led to concern. There was a run on the banks. Canadians have never
experienced such a thing, but the Europeans have. The Americans did, too, in
the 1930s, and they had a moratorium on their banking system.
In a sense, the demand for the closures was indefensible. The IMF should have
had historians and analysts to explain the likely consequences of such an act.
The currency board would have been an unmitigated disaster. Mr. Henke claimed
to be an authority on the currency board. I am probably one of the few in the
world who has ever written on the history of currency boards in Southeast Asia.
It was part of my doctoral thesis. Currency boards were a mechanism for
monitoring management in colonial Southeast Asia.
The problem -- and this is the essence of the currency board system -- is that
they deflationary. Currency board holds down the domestic economy in order to
accumulate reserves abroad, and those reserves must equal 100 per cent of the
local currency issue. To maintain that 100 per cent, in fact, it is necessary
to maintain 120 per cent -- the so-called premium.
For the local economy, it is a horrific deflationary system, designed to
accumulate savings invested abroad in foreign banks. Why anyone would want to
return to the system of the 1920s and 1930s is beyond me. That is one of the
beauties of history; it does teach us something.
Senator De Bané: In order to discuss a very important issue, a Canadian
minister went to one of those countries with a large delegation of officials
from his department. When he arrived, he met with the Canadian ambassador to
brief him about his upcoming visit with his counterpart. Our ambassador told
him to talk about the weather during his half hour appointment -- that he
should avoid bringing the substance of the matter up at all costs.
The minister told our ambassador that he was there to discuss the issue with
his counterpart. The ambassador told him not to discuss it with the minister
-- that if he so much as broached the subject, the bureaucrats would
immediately whisk the minister away. In essence, the bureaucrats were to deal
with their counterparts; it was not appropriate for the ministers to discuss
it. Does that mesh with what you said about the immaturity of these countries
in some areas? What does the story mean?
Mr. Rudner: As a person who has been engaged in the region for 30 years, I
would interpret it in a Southeast Asian context.
Firstly, there is a sense of pride. The Southeast Asians all came out of a
colonial challenge. Even Thailand, which was not colonized, fought the French
in 1940, and did not do badly. Few Canadians are aware of that war.
The Burmese fought the British three times. They won twice and lost once, but
once loss to a colonialist means the end. The Malaysians were conquered, the
Indonesians were conquered, and so were the Filipinos. Each one of these
countries struggled to independence. In each of them, there is a view that the
residents ought not to view themselves as inherently inferior to others, and
there is a special sensitivity to white skin.
The ASEAN -- the Association of Southeast Asian Nations -- countries entered
into an arrangement with the Europeans called ASEM, the Asia-European Meeting.
The Australians said that they were Asian, and they wanted to belong. The
Malaysian Prime Minister, however, publicly mused about whether the Australians
would see an Asian face if they were to look in the mirror. There is a high
degree of sensitivity on issues such as these.
For a Canadian minister of the Crown to come to a minister of a Southeast Asian
country and presume to tell him how to run his society --
Senator De Bané: It was to discuss an issue of bilateral interest.
Mr. Rudner: I understand what you are saying. We are not intervening, but we
are making judgments about you. Malaysians took immense offence at an
Australian minister who said that the Malaysian minister was recalcitrant.
Recalcitrant does not mean something terrible; all of us are recalcitrant at
some point or another. Malaysia almost broke off diplomatic relations with
Australia over this, however. There is an immense amount of sensitivity.
Secondly, Canadians tend to be adverse to adversarial social connections. We do
not like people who yell or complain to one another. We understand politeness,
and so do the Southeast Asians. They are non-confrontational. Musawarah; we
are together as family and we agree. When we say "yes", we mean, "Yes,
I heard you". We do not necessarily agree with you.
There are other mechanisms to deal with social conflict and the resolution of
conflict. They are never dealt with publicly, even amongst Southeast Asian
countries themselves. There was an ASEAN summit, and the Malaysian prime
minister put forward a proposal for an East Asian economic group. The
Malaysians had not told the President of Indonesia in advance that they would
do this. The Indonesians took immense offence, and my understanding is that
the Indonesian President told his officials to kill the idea at any price. It
did not matter whether or not the deal was good for them; the perceived slight
was the only thing that mattered. There is a certain style of courtesy and
togetherness by which issues are to be resolved.
In your story, the Canadian ambassador was trying to impress upon the minister
that such issues must be left to the ambassador's working level in this
culture, and the he and his counterparts would resolve the issues. The task of
the ministers is to create comfort at the level of government-to-government
These practices may appear strange to Canadians, but they are the norm for
Southeast Asians, and for Asians in general. Further, it is emphasized when
there is a racial difference. We are not a colonial country, nor do we see
ourselves as one. The Southeast Asians do not see us that way either, but they
do see us as non-Asian. In that sense, an Asian minister could well say to an "aggressive"
Canadian interlocutor, "If you look in the mirror, do you see an Asian
face?" In that sense, I can understand what the ambassador in your story
was telling the minister, and I might understand why the minister would have
been so advised.
It is also true that we expect a lot from our officials, and we ought to be
preparing, equipping, and instructing our officials to play that role. Perhaps
that will mean a different kind of relationship between ministers and
diplomats. Canadians tend to like symmetry; we like ministers doing things. In
the Asian context, we may need a different modality if we are to be effective.
Senator De Bané: There are those who believe that the problems faced by
Japan at the moment stem from the fact that its ministers are figureheads, and
that for years the real decisions have been made by the Department of Industry,
the Department of Trade, and the Department of Finance. Some very bad
decisions have been made by those departments, the banks, and big industry. Now
those bureaucrats are seeing the consequences of their bad policies. Is it not
true that this is due to the fact that the ministers are figureheads, and
bureaucrats have been making the decisions for 50 years?
Mr. Rudner: Yes, however I would not come to the same conclusion. With respect,
your description is apt but there is a minor wrinkle which changes your
conclusion. There is no question that those ministers do not manage their
portfolios, nor are they expected to do so. That does not mean that they do
not command a high degree of respect for doing what they are supposed to do,
which is to create an enabling environment.
What is the enabling environment? Japan's main challenge was to bring about a
transformation from an imposed to an internalized democratic constitution.
Please remember, the democratic constitution was an American imposition which
was internalized by Japan. That has not happened too often in history. The
Japanese internalized their democracy. That did not happen by itself -- it was
the result of 50 years of Japanese governments enabling that to happen. While
they were doing that, the bureaucrats managed the shop.
The problem goes back to this concept of directed credit. The banks in Japan
did not lend to the best borrower; they lent to those who were friends of the
government. Again, we see the patron-client lending pattern. A lot of these
investments were poor investments. It happens in Canada too -- not necessarily
as patron-client, but as directed investment -- and there are problems with
that. The problem is that these loans must be repaid. The money is borrowed
short and paid back long -- often very long. That is what happened in Japan.
Senator De Bané: Who runs the department, the bureaucrats or the
Mr. Rudner: A benevolent minister allow these things to happen -- needs them to
happen, in fact. Democracy cannot be instilled and internalized in a society
unless people are persuaded that there will be an airport in their prefecture,
or a new computer chip plant in their area. How is it internalized? Not by
means of giving long lectures on Japanese radio, or having some academic speak
on Japanese television; you do things.
Sometimes such things do not pay off in an economic sense or in a banking sense,
but there is no question that they have helped to transform Japanese
attitudes. They have internalized democracy. In my opinion, that is a great
They certainly could have had a different type of minister. They could have had
a more proactive minister, in a French sense. French ministers take charge of
a portfolio. I am not sure that it would have led to a different outcome,
however. The ministers managing the economy might not have managed the
politics, and we might have had a less satisfactory internalization of
democracy in Japan. That would have been a worse outcome. I would rather have
the failure of a firm than the failure of a policy.
Canada is a partner in APEC, and we are involved in Asia. We also have a very
close and cordial relationship with Japan. As such, it was very important, if
not crucial, for us to see Japan emerge as a peaceful and democratic country.
Senator Andreychuk: You said that we should not impose our values on their
system. It seems to me that international diplomacy is based on compromise,
however. It is almost reminiscent of debates we used to have in the Middle
East in the 1970s, when we would not send women into those countries because
they had no status -- what is intended to be a polite greeting may be rebuked
It seems to me that you are saying that everything must be done their way, and
that we do not have legitimacy as an Asia-Pacific country.It is one thing to
want to join the club; we must therefore abide by the rules. It is another
thing entirely if we have as much legitimacy in the area as anyone else does,
and we work together bilaterally in the area. Why must Canada always yield to
everyone else's rules, regulations, and ideas of politesse, rather than
finding some compromise halfway?
Mr. Rudner: I agree with the implicit thrust of your remarks. No, I do not
think it is for us to kow-tow to things that we find unacceptable or
Where do you compromise, and how do you find the mechanisms to reconcile
differences? At one level, it is not for Canada to attempt to pronounce
judgment on every other country's internal practices on the international
stage. If we want to teach our students judgments about country X and country
Y, however, it is absolutely appropriate. To translate our domestic opinions
into a foreign policy is hazardous because we do not have a mandate to govern
the Indonesias, the Thailands, the Irans, or the Japans of the world.
Similarly, they do not have the right to come into our country and insist that
we adapt to their standards. You can teach what you want; you act according to
a multicultural diverse international system.
Where do we compromise? Many Southeast Asians share most values with Canadians,
although there are areas where people disagree. Where does religion fit in?
Some who believe in human rights are of the view that the ideal state which
respects human rights is a religious state -- an Islamic or Buddhist state.
Most Canadians would prefer a secular state with a high multicultural component.
These values are different, yet each country could explain to the other where
It is not our place, however, to go to Malaysia and say that any affirmative
action which favours Malays and discriminates against ethnic Chinese is
immoral. The fact is that in the Malaysian context this is the outcome of a
democratic, political solution which satisfies their needs, even if it might
violate certain of our principles. We could, however, work with the Malaysians,
and ask if we could use our experience to help them find ways to smooth the
rough edges in the policy. We could point out that we do have affirmative
action for people such as native peoples, for example.
The question is: Where and how do we compromise? What are the modalities of
seeking shared resolution and shared learning? One learns from our experience.
I am unsympathetic to the notion of dictating to others. We can teach
ourselves, but we cannot dictate to others.
The Chairman: You started off by telling us that the countries in this area
have quite robust economies, but fragmented societies and weak states. The
implication of that comment seemed to be that these countries need stronger
states. What are their prospects of achieving those stronger states?
Mr. Rudner: That is the most difficult question of all. Korea has made its
first transition from a highly centralized and authoritarian presidency, where
the presidents came out of a military tradition, to a democratic presidency.
In fact, they have put two former presidents on trial for crimes committed
during their presidencies.
Thailand made a successful transformation, and it is holding to an elected
civilian prime ministership with a democratic government. That government rid
itself both of corruption and of a strong military presence -- an army which
had been actively interventionist in political life since 1932. The country
maintains a monarchy which accepts constitutional rule and which gives it its
blessing, and the country is run by a civilian government.
There are major and significant changes in Malaysia. I believe that we are
about to see another peaceful transition of power from one Prime Minister to
another. It is the one country in Southeast Asia which has had a succession of
such peaceful transitions. It operates within a framework of elected
government, one which is representative and responsible, and competitive
elections are held. There are grounds for optimism.
Problems exist in countries which have not yet had experiential benefit.
Indonesia has not yet had this. The Philippines just had a third election
which brought a president to power through the ballot box. That is cause for
optimism. There is also cause for optimism in Taiwan, but the situation in
China is untested.
What could the countries who have not yet had successful transitions learn from
it? Secondly, what would the appropriate role of Canada's development
cooperation program be in supporting processes which enable those transitions?
These are lessons that we have not yet learned. They are there, however, and
we must study them.
The Chairman: This has been a most useful session, and we appreciate your input.
It is not as optimistic as some might hope, but it is not as pessimistic as
we had feared.
Senator Andreychuk, are you in a position to deal with the budget?
Not much is new in the budget, except that it would be agreed that I would
consult with the vice-chair before any commitment would be made to participate
in a conference. Is that the only point?
Senator Andreychuk: That was the only point on which there was some discussion.
The Chairman: Otherwise it is all right?
Senator Andreychuk: Yes.
The Chairman: Do I have a mover?
Senator Stollery: Yes.
Senator Corbin: What are we voting on?
The Chairman: We are voting on the summary of expenditures, which is $17,200
and then we have a breakdown of the total.
Senator Corbin: Which conference is it?
The Chairman: There is no particular conference in mind -- this is
precautionary. We had it in the previous budget. We did not know whether that
line would be used. In fact, there was a conference which Senator Carney
The Chairman: Is it agreed?
Some Hon. Senators: Agreed.
The Chairman: Carried.
The committee adjourned.