februari | 2015 | IN-SE Services

March 2000

March 2000

Notes on the future of warfare

The nature of warfare will experience some rather large changes on the short term. The changes are brought forward by a different threat perception and by the changes in capabilities, technical capabilities, of the armed forces. The nature of warfare has experienced many changes in history. The invention and introduction of new capabilities like the stirrup, crossbow, black powder, machine gun, the main battle tank, the aeroplane and weapons of mass destruction forced the armed forces of the world to change their battle order and doctrine.

The end of the cold war, the end of the superpower confrontation, demanded an assessment of the threat. Instead of one large, known and predictable enemy many small, unknown and unpredictable enemies, or better potential enemies became the order of the day. A new or different kind of threat had emerged which demanded a different kind of force and application of force.

At the same time as the threat changed new capabilities were and are to be introduced. What the Americans call the Revolution in Military Affairs, RMA, would change the composition and the use of forces. Beside ever more powerful, lethal and precise weapon systems, improvements in Command, Control, Communication, Computers and Information, C4I, especially the improvements in the Information factor, will radically improve the abilities of the armed forces. And information, as we will see later, is the all over-whelming factor in modern armed forces in which nearly every system is based on or connected to some kind of information system

A new era of warfare will be introduced in the new millennium. The first developments, steps, have already been made. The introduction of the RMA systems and doctrine will take place in the coming decade. At the end of the first decade the leading armies of the world will have incorperated RMA. Many will have partly introduced the concept of RMA and even more will not, or just a little, have applied RMA.

So the high-tech forces of the future will continue to meet less capable but nevertheless very dangerous opponents. Opponents who will use technical updates to improve the inferiority of equipment and geography, human rights and diplomacy to weaken the other side. Especially those medium scale rogue regimes with relatively large armed forces will remain a continuing threat. Partly modern, up to date, and mostly outdated but nevertheless deadly. Those armed forces tend to be masters in concealment, attrition warfare, defensive operations and regrettably the inhumane suppression of the population. Those rogue nations use their advantages to the utmost and only understand one language, direct and overwhelming force. They have to be dealt with through the use of cold war weapon systems. The concept of RMA has only a limited usefulness in these situations. As it will make warfare faster and more deadly while avoiding civilian casualties but the leadership of the rogue nation will still be able to avoid the worsest consequences of the conflict. They will be more endangered by better intelligence and weapons but they can still survive.

RMA will become ever more effective and efficient but it is not a solution to all problems. The RMA will make the armed forces more flexible and somehow more balanced to better fulfil the roles/orders given to them. The RMA will lead to some changes like it will diminish the role, position, of the MBT on the battlefield. The MBT will not disappear as in some circumstances the MBT will remain an important tool to persuade, defeat, the opponent.

The political environment, the demand side

The end of the cold war meant the end of the large heavy armoured divisions with 250 + MBTs. The heavy divisions were developed in anticipation of the Soviet threat of several thousand MBTs rolling over the German plains with the aim of destroying the bad western economical-political system. To counter this threat the west needed heavy formations able to stop the Soviet armoured collumns.

The end of the Soviet empire and war machine meant the end of the large heavy formations. This became especially visible as after the cold war in many other parts of the world conflicts emerged which demanded the attention of the United Nations and/or the west/NATO. Many of the conflict areas demanded a rapid deployment of forces and the geography more than ones forbade the deployment of large heavy formations. Both of the above mentioned conditions, time and geography, excluded the large heavy cold war division and stated the need for lighter rapid deployable formations.

The need and existence of heavy formations is not totally excluded but the scale and the usage will be smaller. The light to medium easy to deploy, flexible, formation is in greater demand and more usefull in the small scale low to medium intensity conflicts abundantly around in the world.

The heavy armour was and will only be necessary in conflicts like the second Gulf War, in any future Iraqi advanture, in the first phases of the operations like in Bosnia Herzegowina and in Yugoslavia, Kosovo and as a reserve, back up force. The deployment of heavy armoured forces demand that two conditions are fulfilled. The geography has to be more or less suitable for heavy armour and the potential enemy has to be impressive enough to justify the need for larger formations of heavy forces.

The easy to deploy light to medium forces are in the majority of other conflicts much more useful than the heavy formation. The need to be present as fast as possible, the kind of geography, e.g. jungle, mountains or build up areas, and the quality and quantity of the opponent justifies and demands the use of lighter forces. Heavy forces might be impressive but are unsuitable in these kind of conflicts.

The light to medium forces have been, are and will proof to be very useful in conflicts like in west Africa, Sierra Leone and Liberia, in central Africa, the Democratic Republic of Congo, Uganda and Rwanda, in southern Africa, Namibia, in Asia, Kyrgyzstan, Afghanistan and in the Jammu and Kashmir area, and in the majority of current and future peace keeping and peace enforcing operations of the U.N. or any other regional security organisation.

Technological developments, the supply side

The future of warfare is equally influenced by the technological development of weapon systems, or better all systems, means, needed to execute the military business. The nature of warfare will change as new and more effective and efficient systems are and will be introduced. The what in the U.S.A. is called the Revolution in Military Affairs, RMA, will greatly influence the way conflicts are solved and the military is organised. Other nations like France, Germany and the United Kingdom have equal programs to modernise the armed forces. For reasons of simplification, because of the fact that the U.S. programme is the most advanced in development and implementation and that the U.S. programme will be the measuring-staff for the other countries we will use RMA to describe the technological improvements.

The RMA is aimed to make the armed forces better prepared and able to conduct warfare. RMA is aimed at minimising casualties and maximising the impact with as little collateral damage as possible.

The RMA is centred at information warfare in its widest sense. This includes everything which has something to do with information gathering, analysis, decision making and execution. This not only includes the information as such but also the systems in the process which need and use information as such or as a system. And as all modern military equipment possess some kind of informationsystem the whole military is part of the RMA. The RMA will optimise the information process to allow a 24 hour operation tempo in every weather and should outpace every opponent.

The RMA will seek to improve the soft and hard part of all kind of information systems, electronics. RMA will for example develop and improve the abilities to attack the computers of the opponent to destroy its software and limit its fighting ability. The hardware part of the RMA is aimed at the development and improvement of sensors to improve surveillance and attack possibilities. Of communications to improve the relations from the top to the bottom and vice versa through the use of advanced communication systems which offer not only language but also data and picture exchanges. Of advance data management to improve situation awareness. Of smart/intelligent weapons, e.g. bombs and missiles, to improve targeting and the impact of the explosion. Of robotic systems to limit the casualties, to increase the knowledge of the other side and to destroy the enemy, e.g. Unmanned Aerial Vehicles, UAV, which are invented to gather intelligence or even attack the enemy and other Unmanned/unattended Systems for the destruction of the opponent’s forces through intelligent mines and even fighting vehicles. The UAV is just at the beginning of its deployment. UAVs are going to be used for surveillance, attack, communication, diversion and EW/Sigint roles and span large craft like the already deployed Predator and to be deployed mini and micro UAVs which are able to move into buildings. And of stealth. The RMA will deliver stealthy, camouflaged, soldiers and other equipment to make them invisible to the enemy. Advances in photo-electronics will make it possible to blend soldiers and equipment, vehicles, into the environment. If they are armed with intelligent weapon systems they will be the perfect military system. Impossible or difficult to detect with a near to 100 percent hit probability with little to none collateral damage.

The RMA will deliver a new kind of warrior with largely improved capabilities. The new armed forces will thereby receive new equipment to meet the demands of a lighter and more mobile force. A new generation of howitsers, ammunition and wheeled armoured vehicles will deliver a much improved capability, flexible and at lower operating costs. These new vehicles and weapon systems should be able to meet all demands stemming from a different threat perception.

The defence industry is able, especially because of the increasing role of high-tech companies as prime contractors, to deliver the technologies for the RMA on schedule. The military and the industry have met eachother at a favorable time. The military had to adjust to the new threat and the industry has been developing a new family of systems which perfectly fitted to the description of the armed forces.

Conclusion

The RMA is the perfect answer to the new demands out of the armed services. The armed forces need light to medium formations which are easy to deploy all around the world. These forces should be able to fight in a medium to high intensity conflict but should also be able to conduct peace enforcing and peace keeping operations at a reasonable price. The activities conducted under and for the RMA project wants to use information, electronics, to improve the capabilities of the armed forces. The RMA is aimed to create flexible forces with enough fire power to execute the tasks of modern armed forces with lesser resources.

The first clear signs to the introduction of medium units are the plans of the US army to acquire the Mowag designed Piranha LAV III 8 * 8 wheeled vehicles in several versions to test the medium unit in real circumstances. And the advanced plans to establish several medium weight brigades/divisions based on an all wheeled vehicle family. The future US army will probably consist out of 2 light divisions, the 82nd and 101st division, 5 + medium divisions, the 6th, 7th, 9th, 10th and 24th or 25th division and some independent brigades and 3 + armoured divisions, the 1st, 2nd and 3rd armoured divisions and some independent brigades and or cavalry regiments. The actual number and which division may however change in the future.

The RMA will eventually, if the financial resources will be made available, cover all parts of the US army. At first it will deliver new light /medium units to satisfy the demands of the armed forces but the RMA will also cover the remaining heavy formations. The heavy units, smaller in quantity will remain necessary in a number of operations and as a reserve force, will also benefit from the technologies developed under the RMA project. The heavy armour will also need advanced sensors, communications, data management, intelligence, smart ammunitions and stealth to survive and more importantly remain superior on the future battlefield. At first it will be added as an update but the new high tech MBT is already on the drawing table and in the research labs. Maybe not as a 60 tonnes + vehicle but still in the 40 tonnes range. The heavy units will remain a necessity and will therefore be part of all modern armed forces.

The nature of warfare will change through the increased use of advanced systems and more mobile units. The armed forces will be more balanced with light, medium and heavy forces at its disposal to fulfil all tasks given to them. The armed forces will be able to react to every kind of emergency with the appropriate force and speed. The forces will be more easily deployable and will reach their operation area faster than ever before while offering approximately the same fire power and fighting capabilities around the clock in every possible weather. The need for a build up period will be drastically shortened and the arrived forces will be able to start hostilities very soon after. If the deployment of heavier forces should be necessary the light and medium forces will be able to fend off nearly every possible attack and start offensive operations as soon as the heavy forces have arrived on the scene. The new force will be able to move faster than before and will be able to outflank the enemy with the new medium wheeled units without giving up fire power and the resilience of the former dominating all heavy formations. The balanced, 2-5-3 light-medium-heavy, army will be more flexible and stronger and consequently better able to overcome every kind of resistance.

The implementation of the RMA will deliver the US the opportunity to execute its security and foreign policy with more fervour without being to dependent on the support of allies in the area. The RMA will give the US military the means to fulfil the strategic ends.

February 2000

February 2000

Conflicts in the world

December 1999, Part I;

– Introduction

– The Americas

– Europe, Russia and the new states

– The Middle East

February 2000, Part II;

– Africa

– The Indian subcontinent

– Asia, the Pacific-rim

Conflicts in the world, Part II

– Introduction

– Africa

– The Indian subcontinent

– Asia, the Pacific-rim

Introduction

On the eve to a new millennium the world has not become any safer or more peacefully. There are now more conficts and wars than in the previous decades during the superpower stand-off. The Cold War might have been unpleasant but at least it kept most conflicts in the world at bay. As no side could allow a failure or even a loss of face. This could have easily escalated into to something uncontrollable and absolutely destructive.

On all continents of the earth there are some or more conflicts or even wars going on. As a definition of conflict or war we would like to use the following description, war or conflict is happening if states or organised groups of people have differences with eachother which they choose to solve or end by the use of violence. This violence is that large and intensive that normal live is interrupted by it. War in our understanding is only an increased, stronger, form of conflict with more agression and more victims, military and civilian.

We intent to deliver an overview of all actual conflicts and the ones which might come into existence on the short term, e.g. in the coming 6 to 12 months, in the world.

Africa

The African continent promised improvement after the Cold War had ended. In a big sweep of democratisation many African nations got rid of their autocratic regimes and new elected governments were sworn in. The subsequent economic rally surprised many in Africa and around the world. Finally Africa started to develop, it seemed as it would leave behind its bad past of political suppression, economical depression and financial exploitation.

As quick as progress, democracy and peace came as fast it went away. As soon as the new regimes were in power, they abandoned democracy and a new suppression began. And several old and deep seated sentiments and hatreds became alive but also a number of people with large ambitions could easily manipulate the poor and unemployed crowd to create tensions and conflict.

Inter-state war is very rare in Africa, there are differences and tensions run sometimes high but it stopped mostly just before war. There is only one inter-state war going on right now and these two countries used to be one, Ethiopia vs. Eritrea.

Intra-state conflict on the other hand with the support of a neighbouring country happened and happens all to often. The majority of the African people experience or have experienced an internal war at some time in their history. This might be caused by a coup, fighting between tribes, religious motives or conflicts between the remnants of rebel organisations of the colonial era.

Still a number of intra-state conflicts are going on and will most likely continue in the next millennium. The intensity is mostly low to medium, depending on the season, The form of warfare is mostly guerilla or infantry vs. infantry with generous use of land mines, occasional armour and artillery support and now and then some air strikes. But the brutality during the fighting and towards civilians is out of bound. The soldiers are often very young, without relatives and future, with strange convictions like that by killing and mutilating they receive the energy/strength of the enemy and doped by some mysterious substances like qat.

This have made the civil wars in Africa very bloody and disgusting. Unfortunately this catalog of horrors was extended by the killing and raping to spread fear like in Algeria and the aimed proscecution and systematically murdering of another race like in Rwanda. Africa has seen more tragedies in the last 50 years than should be possible in a socalled civilised world.

Egypt

The situation in Egypt is in comparison with other African nations very good. The only threats to Egypt are the activities of the muslim fundamentalists who want to change Egypt into an islamic republic and the slumbering differences of the Copt christians with the muslim majority in the country.

There are several obscure organisations like the Jihad, Takfir wal Hojra and the Muslim Brotherhood which are active with recruiting new members/followers at the unemployed and poor people in the society and ofcourse at the universities. They offer them ideals and alternatives and very often they even have a social system to support the poor. The fundamentalistic penetration of the society is becoming a fact of live. Ever more fundamentalists are getting government positions.

All those militant fundamentalistic organisations are not only working in Egypt but are also directly or indirectly, through associations active in other countries. They have created networks which makes them stronger and more difficult to defeat.

To enforce their policy some groups, the radical muslim fundamentalistic movements, resort to violence and attack government institutions and officials and the economy of the country to weaken the government. The assaults on tourists have a double function it weakens the economy and warns/punishes the infidels who are behaving disrespectfull in an islamic country.

The Copt christians, 5 to 8 % of the population, are pressured by the islamic majority. They are discriminated by the government and the by the majority of the islamic population but since some time they are also psysically assaulted by militant muslims who do not tolerate any other religion in Egypt. This will most likely continue as they are an easy target and the security forces are not very likely to proscecute the militants intensively because of the assaults on the infidels.

The radical islamic fundamentalists will continue to attack the government and the tourist industry. On the positive side, the Egyptian security forces will be ever better able to control the islamic militants even if occasional attacks will occur. The freedom of movement will become smaller of the agressive militant organisations and time will work against them. As any economic recovery and every week they can not deliver some results the supporters will turn away. The agression of the islamic militants will become lesser but the influence of islamic fundamentalism, especially from the more moderate organisations, will remain strong and will increase through the large social system they constructed in the country and the penetration of the government institutions and nearly every other part of the society.

The position of the Copt christians will become worser as they have no priority in Egyptian politics. The discriminatons of and the attacks on christians and their institutions will continue in 2000. The Copt christians do not have the political influence, national nor international, to end it.

Algeria

The situation in Algeria seems to become more stable. After years of insurrection, a military government, a president elected under undemocratic conditions, another president, the current president Abdelaziz Bouteflika, elected under better circumstances, and the recently held referendum on the National Reconciliation delivered Algeria some stability. The fight against the violent islamic opposition and the reconstruction of the country receives the support of the population. This will boost the position of the president and will limit the influence of the armed forces in the society.

After decades of political and economical mismanagement through the government the country was close to bankruptcy. In this precarious situation a new political organisation with a strong islamic background, the Front Islamique de Salut, FIS, Islamic Salvation Group, could win several communal, county and provincial elections. The FIS promised improvements and they could even deliver some improvements in the areas they controlled. The FIS was and is however an islamic fundamentalist organisation which want to change Algeria into an islamic republic.

The success of the FIS continued as they won the national elections and were on the verge to take over government. This was unacceptable to the ruling establishment and the military. The military took over power and put in their choice as preseident. The FIS was declared illegal and was forced in the the underground.

The reaction of the FIS was to re-organise themselves and fight the government. The Islamic Salvation Army, the military wing of the FIS started to fight the government. As government officials and institutions were well guarded their targets were people from western countries working in Algeria, journalists, artists, in short short people who disapproved islamic fundementalism or who were simply conceived as disrespectfull to the islamic cause.

The insurrection created and nurtured other groups like the Groupe Islamique Armee, GIA, armed islamic group, and the Salafist Group for Preaching and Combat. Those organisations were even more radical in ideology and actions than the Islamic Salvation Army.

The GIA and the Salafist who also fight for an islamic republic and object any western influence started to spread terror in the countryside by attacking villages and killing all people they could get. The terror actions should make the population aware of the incompetence of the government and that Allah, FIS, GIA and/or the Salafist, are the only option to peace and progress.

The actions of the islamic fundamentalists and especially the resistance of the population against the terror campaign undermined the popularity of the FIS. The GIA and Salafists and the likes never had much popular support and lost the most of it because of the atrocities committed by them.

The policies of Bouteflika and the deprivation of influence of the islamic fundamentalists in the society made the FIS renounce the war against the government. The FIS realised that they could not win the war and that the war, atrocities, estranged the people from them.

Consequently, as Bouteflika limited the power of the military somewhat, introduced a new social and economic policy and finally offered some kind of amnesty for the FIS/AIS fighters. The FIS took the opportunity and declared an end to the violence.

The GIA and Salafists will however continue their struggle. The internal war in Algeria will continue in 2000 as the GIA and Salafists will keep on fighting or better continue committing atrocities. The intensity will be lower but it will take at least one to two years to eradicate the violent fundamentalistic organisations out of the society.

Morocco

Morocco has been relatively quiet recently. The death of king Hassan II and the new rule of his son, king Muhammad VI, have been the most exiting intervention in Moroccan policy in the last year. King Muhammad VI will introduce new ministers and advisors and probably a new policy in the kingdom. The problems of Morocco are largely economical as the economy has been performing very badly in recent years. The islamification of the society has been early occupied by the government which limited most of the activities of muslim fundamentalist organisations in the country.

The political problems are the still centred around the Western Sahara. This former protectorate / colony of Spain has been occupied by Morocco as Spain left this territory. Since then there has been a conflict between Morocco and the Polisario over the control of the area.

Polisario with its armed wing SPLA has been fighting a decade + long guerilla war with Morocco. Polisario has several bases in Algeria and received support from Algeria. Algeria has not had the best relations with Morocco as those two had some minor differerences about the demarcation of their mutual border.

The situation in the Western Sahara ended in some kind of stalemate as Morocco dugged itself in with the famous wall of sand around the most valuable areas in the center of the territory and settled many thousands of Moroccans in the area. The activities of the Polisario organisation were severely limited by the policies of Morocco.

The guerilla war has not been very succesfull but international pressure delivered a diplomatic solution and a cease fire. There would be a referendum about the territory. The execution of the referendum has been however delayed by the question: who is allowed to participate. All people living in the territory, including the Moroccan settlers or only West Saharians including the ones in the refugee camps in Algeria.

The situation in the Western Sahara is a death end street as the Moroccan government is hardly in a position to give up the territory because the large funds invested in the protection and infra-structure of the territory. And ofcourse because of the minirals over there. Polisario on the other hand can only accept independence and they want it as fast as possible. Time will degrade their forces, sources of support, Algeria is hardly in a position to continue to support Polisario, and it will become ever more difficult to relocate the Morrocan settlers, at least at a civilised and correct way.

The status quo is beneficial to Morocco as it includes a cease fire. The situation for Polisario will become worser. A return to the guerilla war is very likely in the coming year. Its intensity will be however low and not very effective as Polisario does not have the necessary military strength and not many powerful friends.

Niger

There have been some destabilising activities in the south of the country. The local population, tribes, are dissatisfied with recent activites of the central government. Officials of the government have been granted large tracts of land and rights in the most promising areas of the region.

The local population is resisting this policy and are forming organisatons to resist the government policy. The organisations are not very well organised nor unified but this is just a matter of time. Within 6 to 9 months this could have changed with an increasing number of activities initiated against the government. This will mean violence against government institutions and officials and government suppression against the opposition.

Chad

Chad has been one of the many countries who are involved in the conflict in the Democratic Republic of Congo, DRC, the former Zaïre. Chad has supported the government of Kabila in their fight against the rebel forces supported by Rwanda and Uganda.

Some 2.000 troops had been deployed in the DRC but they have been withdrawn as the costs of the intervention became to expensive and because of the mounting internal problems.

Chad is having some internal problems with two groups. First the Movement for Democracy and Justice in Chad, MDJT, under the leadership of Youssouf Togoimi which is claiming to occupy several oases in the desert in the north of the country. The MDJT has stated the willingness to move south and occupy the capital N’Djamena but is until now lacking the capability to do so.

Second, the government is at odds with groups living in the south of the country. A new rebel group has been organised to resist to the plans of the government for oil exploration in the south of the country. Former soldiers of the armed forces of the federal republic, FARF, have been recruited by the rebels. The activities have been moderate until 1999 but they will most likely increase as the government plans are implemented as they were planned in 1999.

Sudan

The situation is Sudan is as worse as last year. The civil war is destroying large parts of the country. Especially in the south and north-east of the country. To limit the support to its main enemy in the south of the country, Sudan is supporting the regime of Laurent Kabila in the DRC. To support Kabila Sudanese forces have bombed several towns in the DRC which are held by the rebels. A victory of Kabila would automatically help Sudan as the Sudan’s People’s Liberation Army, SPLA, would loose bases and support out of the DRC. The second reason of Sudan to support Kabila, the DRC, is that the rebels in the DRC receive support from Uganda and Rwanda and Uganda used to support the SPLA. So, indirectly this would undermine Uganda and the SPLA.

The relations with Uganda have recently improved after a peace agreement was reached between the two countries. According the agreement the two states would cooperate in affairs concerning the military and security. And more importantly they would not allow rebel forces to operate from eachother’s territory, e.g. the SPLA in Uganda and the LRA and UNRF II in the Sudan.

The peace agreement has one large omission, the policy on the Democratic Republic of Congo, DRC, as both support different sides. The contradictionary policies on the DRC will soon lead to collision of interest and thereafter very likely the end of the peace agreement.

The civil war in Sudan is continuing at the same pace as last year. The islamic north is still fighting the christian / animist south. The southern opposition is largely united in the Sudan’s People’s Liberation Army, SPLA, under the leadership of John Garang. There some changing loyalties of local warlords but no large changings which would change the balance in favour of the north. The south has in the mean time received support from islamic opposition groups who are also fighting the islamic fundamentalistic regime in Khartoum.

The activities of the SPLA did become more succesfull as it became an ally in the National Democratic Alliance, NDA, with muslim opposition groups out of the north of the country. For some time they could put the government under pressure. This led to some negotiations under the guidance of Lybia and Egypt. But after an agreement between Eritrea and Sudan was reached not to support rebel forces in eachother’s country, the conquering by the Sudanese armed forces of the province of Unity, the province with the oil fields, and the opening of the southern oil fields the position of the government forces were better than ever before. Consequently all negotiations were ended because of irreconciliable demands and even as the NDA was wiling to accept a cease fire, the SPLA did not agree as did the government.

The civil war will continue as before and will likely intensify as the negotiations were fruitless and the agreement between Eritrea and Sudan proved to be very short lived. Eritrea moved heavy forces to the border with Sudan and continued their logistical support to the SPLA.

The horrors to the civilian population has been as worse as before. Hunger, starvation, and looting of Sudanese army forces and changing loyalties of local warlords is making live very difficult for the population. The civil war is the Sudan seems to be a never ending story.

Eritrea vs. Ethiopia

The only war between two states, with the exception of the involvement of many neighbours in the conflict in the DRC, on the African continent is between Eritrea and Ethiopia. The two countries, former allies in the civil war against the communist regime, started a war between eachother about the exact demarcation of the border around the town of Badme in a triangle of about 2.000 sq. km.

After some heavy fighting in the region around Badme, along the Merib river sector on the western front and a diversionary attack on the eastern Burie front, 70 km. west of the Red Sea Eritrean port of Asseb the fighting between the two opponents has entered a status quo as it seemed that both are holding their positions and recovering from the heavy fighting.

The fighting pause has been used to move the conflict into Somalia were both sides support different warlords which in turn support Eritrea or Ethiopia. The Rahanwein fighters could with Ethiopian support conquer the town of Baidoa of warlord Hoessein Aidid which receives support from Eritrea and who is allowing an Eritrean army base to be stationed on his territory at Coriolei. Eritrean forces staged some attacks on Ethiopia from there. The Rahanwein will with Ethiopian support try to capture the Eritrean base at Coriolei.

The fighting between Ethiopia and Eritrea is most likely to continue in 2000. If the forces of one or of both sides are recovered they will stage another direct attack on one or more of the three fronts on the 1.000 km. frontier. Both countries consider the area around Badme as vital to the country and will be very unwilling to surrender or compromise. In the mean time the fighting will continue between the two countries in Somalia as both support different warlords and both use Somalia as a support line and staging area to attack the other side.

Eritrea

Beside the conflict with Ethiopia and the involvement in the Somali conflict, Eritrea has another problems. The Eritrean government is supporting the SPLA in Sudan which is raising tensions between the two countries as Eritrea and the Sudan had some sort of agreement not to support rebel forces in eachothers country.

Eritrea has another more pressing problem, the Eritrean Liberation Front, ELF, is fighting the government of Eritrea as it is discontented with the policy of the government. The ELF is receiving support from Ethiopia and has become stronger and more dangerous. The ELF will continue their struggle and will have a bigger impact on the government and on Eritrea. Even if the conflict with Ethiopia has ended it will prove to be more difficult to beat the ELF as the support it receives now and influence it can win now will proof to be invaluable in the future.

Ethiopia

Beside the conflict with Eritrea and the involvement in the Somali conflict, Ethiopia has a problem with the Oromo people living in the south of the country. The Oromo Liberation Front, OLF, is demanding independence from Ethiopia. The OLF is waging a low intensity guerilla war against the Ethiopian government. Occasional attacks against government institutions and officials is making live difficult in the southern part of Ethiopia. The conflict has led to some collissions with Kenyan forces as Ethiopian forces were in pursuit of OLF rebels who fled to Kenya. A large group of Oromo people are living in Kenya which support their brothers in Ethiopia.

Djibouti

Djibouti is having some problems about the demarcation of the border and the possession of the Hanisch islands with Eritrea. Considering the problems of Eritrea at the moment, it will be very unlikely that the misunderstanding with Djibouti might become violent in the coming 12 to 18 months. But if a diplomatic solution will not reached after the Eritrean-Ethiopian conflict has ended, the problem could eventually become violent. But again this will be very unlikely especially if France has a major base in the country.

Somalia

Somalia remains the same divided country as last year. There are about 26 clan regions and what is called Somaliland in the north. Somaliland is the most stable region in the country, the only one with some kind of government structure.

The Somali conflict heated up as Eritrean and Ethiopian forces became involved in the conflict. In exchange for basing and transport rights Eritrea supports the clan of Houssein Aidid and Ethiopia the Rahanwein clan. The stability which was reached in the country after long and hard fighting has been changed by the interventions/support of Eritrea and Ethiopia. This destabilisation will continue in 2000 as the intervention of the neighbours will give the clans an opportunity to enlarge their territory and improve their power as the others are weakened or better become relatively stronger or weaker.

The tensions between the clans will increase in the future as renewed fighting will be necessary to reach a new balance between the many clans in the country.

Senegal

The integrity of Senegal has been serious threatened by the activities of the secessionist rebels of the Mouvement des Forces Democratiques de Casemance, MFDC. The MFDC are fighting for an independent Casamance, a region in the south of Senegal. The people of Casemance feel themselve ill represented by the government in Dakar.

The MFDC have become more violent over time and the rate of clashes with the government have increased in 1999. The clashes occurred all over Casemance including around the regional capital Ziguinchor. This will continue until the government in Dakar can offer something which will satisfy the demands of the people, the MFDC, living in Casemance.

The government became aware of the seriousness of the demands of the MFDC and the government and the MFDC agreed to end the hostilities and allow free movement in the region. The underlying dispute would then be solved by negotiations in the coming year. If the government is seriuous about negotiations and willing to fulfil some of the demands of the people in Casamance their could be a peace agreement this year.

Guinea-Bissau

Guinea-Bissau experienced a civil war in the last two years as rebel leader Ansumane Mane started a rebellion against the government of president Joao Bernado Vieira. After some fighting between forces loyal to the government and the rebel forces, the intervention of forces out of Senegal and Guinea, a cease fire of three months, a continuation of fighting until a diplomatic solution, a peace accord with elections and a sharing of power, was reached everything seemed to end peacefully. But Ansumane Mane used this opportunity to oust the president and took over power. The peace keeping force left the country after the coup of Mane as they were not wanted nor necessary anymore.

The situation in Guinea-Bissau is however far from stable as large number of forces loyal to former president Vieira are still around in the border region with Senegal and Guinea. It will be very likely that they will try to regain control of some regions and slowly increase their territory. So the fighting in Guinea-Bissau is far from over as long as those forces are not demilitarised.

Guinea

The situation in Guinea is relativily stable, the only problem is the overspill of conflicts from neighbouring countries. Forces fighting the governments in Guinea-Bissau and Liberia are using Guinea as a base to launch attacks into both countries. This creates tensions and occasional clashes between the Guinean armed forces, the rebel forces and inadvertant border crossing of the forces out of Liberia and Guinea-Bissau.

Until now this has not created a problem to the security of the country but this could change if the rebel forces would get to big and powerfull and start to intimidate the Guinean government. And ofcourse if Liberian forces would cross the border in pursuit of the rebels on a regularly base.

Sierra Leone

Sierra Leone experienced some very hard fighting between the government of the elected president Ahmed Tejah Kebbah and the rebel forces of the Revolutionary United Front, RUF, of Foday Sankoh. The government had to be saved and reinstalled twice by an intervention force of the ECOMOG and according to some rumours, the second time with considerable support of a mercenary force of an Executive Outcomes like security company. ECOMOG is the Economic Community of West African States Monitoring Group. The intervention force of ECOWAS, the Economic Community of West African States whose membera are Nigeria, Mali, Gambia, Ivory Coast, Guinea, Ghana, Liberia and Siera Leone.

The RUF was twice able to nearly conquer the whole country and they committed many atrocities against civilians as they wanted to suppress any opposition and the fighters of the RUF have the idea that by mutilating enemies they receive their strength.

With the utmost effort the RUF could be forced back from the capital but they kept control of much of the countryside, including the valuable diamond fields. To break this stalemate negotiations were held and proved to be succesfull. The government will cooperate with the RUF in governing the country until the next elections. The agreement is to be guarded and implemented by a peacekeeping force, UNOMSIL, UN Observer Mission in Sierra Leone, with support of forces of the ECOMOG to create some security in the country.

The peace in Sierra Leone is very fragile as there are still to many government and rebel forces around which might try to endanger the peace treaty and the cooperation between the government and the RUF.

Liberia

Liberia has experienced a very violent and lengthy civil war until Charles Taylor was elected president and was able to eliminate his opponents. The presence of an ECOMOG force could not stop the fighting it could only introduce a short cease fire and held elections. The new government of Charles Taylor were then able with the use of force to eliminate his opponents, the seven or eight factions which fought for the control of Liberia.

The situation is far from peacefull as there are still some organisations around which want to eject Charles Taylor out of power. The majority of them have united themselve in the United Front for the Liberation of Liberia, ULIMO.

The ULIMO continues to fight the government of Charles Taylor and occasionally were able to seize some larger towns in the north of the country. The ULIMO operates out of Guinea but are not yet strong enough to beat the government forces of Liberia. Everytime the government forces could regain the territory temporarily lost to the ULIMO. The fighting between the two will continue and will most likely become fiercer as long as the ULIMO can operate out of Guinea.

Ivory Coast

There have been in the last year increasing tensions between the government and the opposition. The presidential elections in 2000 seduced the sitting government into actions the block, limit, the actions of the opposition. The position of opposition leader Alassane Ouattara, the prime candidate in the next elections, has been questioned. Ouattara’s father has been from Burkina Fasso so Ouattara is not an original Ivorian citizen, ergo not allowed to enter the elections.

Beside the political tensions there was another problem which proved to be more dangerous, especially in combination with the political constellation. Namely, the dissatisfaction in the armed forces about the unability or unwillingness to pay the wages and the allowances which have been earned in peacekeeping operations of the United Nations. The deteriorating living conditions in Ivory Coast made the situation even more dangerous.

Ouattara is allied with former general and former minister of education Robert Guei, which still has strong ties with the military. And consequently as the military created unrest because dissatisfied soldiers went on the streets in Abidjan and started to loot and burn houses and commercial buildings. Former general Robert Guei used this opportunity and took over power and quickly restored order and introduced a curfew. The military coup d’etat was the first in the history of Ivory Coast since its independence in 1960.

The elected president Henri Konan Bedie could with his family and the support of French forces stationed in Ivory Coast leave the country and find refuge in Lome, Togo.

The military junta under the leadership of Guei organised in the National Public Salvation Council wants to restore order, introduce stability and growth and promote the political party of Ouattara, Union of Republicans, as 12 leaders of that party were released out of prison immediately after the coup.

Ivory Coast will not return to the stability of before the coup that easily. The military will from now on continue to play an important role. Even if democracy is restored, the demands, the existence, of the military and especially the possible connections between political leaders and the military will create tensions. These tensions might escalate as the armed forces might become divided and all kinds of militias might be created to enforce political goals. And this is likely to happen in about 6 to 12 months time.

Nigeria

The most populous and on paper one of the richest country in Africa has been able to change in 1999 peacefully from a military dictatorship to a democracy.

Nigeria has been involved as the major regional power in all deployments of the ECOMOG forces in the conflicts of west Africa. The deployments were not always succesfull and sometimes they could not do very much but it has been some kind of stabilising factor. Because of the high cost of deploying that many forces, the financial problems of Nigeria and the internal problems of Nigeria, Nigeria is now scaling back their presence and role in the ECOMOG forces.

The economy of Nigeria is in deep trouble because of the dependency on the oil exports, the divisions in the country and the decades long of government mismanagement, corruption and nepotism.

The problems in the economy are exacerbated by the border problem with Cameroon and especially by the internal differences between many of the tribes in Nigeria which is fuelled by the exploitation of the oil rich regions by the central government.

The external problem is the dispute with Cameroon about the ownership / demarcation of the oil rich Bakassi peninsula. The dispute is now placed at the International Court of Justice but this has not de-escalated the conflict. Both countries have builded up their forces in the region and a cease fire is in place but any wrong perceived movement could end up in breaking the cease fire and the beginning of the hostilities. It will be very likely that some kind of violence will start between Nigeria and Cameroon in 2000. The conflict will be most likely confined to the Bakassi peninsula and both countries will do their utmost to conquer the disputed territory if any violence would start.

The internal differences can be divided into three groups. First between the two major tribes, second between many of the smaller tribes in Nigeria and third between the central government and the tribes living in the oil rich provinces. The internal differences are having a very large impact on the stability and economic performance of Nigeria. The external problem with Cameroon is controllable and small in comparison with the threatening internal problems.

The battle between two of the largest tribes, the Haussa in the north who traditionally had a lot of influence in the armed forces and the ruling of the country, and the Yoruba in the south, who traditionally had more influence in the economy / business community. The fight between those two is about who rules the country and who is getting what position. The differences between the two tribes have recently escalated as a Yoruba has become president. President Olusegun Obasanjo have ruled fair but both groups perceive that the other group is treated better. This have led to clashes between the tribes especially against the Yoruba living in the north of the country. The clashes between the two will continue as there is still a lot of uncertainty.

Beside the fight between the large tribes there are lot of differences between the smaller tribes. These differences are about territory and perceived injustices of one tribe against another tribe. The tribes which have problems with other tribes or with eachother a for example the Ijaw, the Ilaje, the Itsekiri and the Urhobo. Most are differences about the ownership of property and end in small scale war between the tribes and could only be ended by the massive deployment of Nigerian security forces to the area.

And finally the conflicts between the tribes living in the oil rich provinces and the central government. The tribes in the oil rich provinces do, in their perception which is pretty correct, not get a fair share of the oil wealth. But they receive all the problems of the oil exploitation. Consequently they started to resist the central government and demand a larger share of the oil revenues, autonomy or even independence from Nigeria. The small tribes resist orders from the central government and they even commit acts of sabotage against the oil industry in their region. The actions of the tribes have until 1999 been controllable by the central government but sometimes the central government had to use a lot of violence and inhumane actions against the tribes to restore order. This kind of hard suppression operations will become ever more difficult in the future, so limiting the government in solving internal problems.

The internal differences in Nigeria will most likely continue in 2000. The problems might increase as there is no clear cut solution to satisfy all. The Nigerian government will need all avaiable political skills, ability to compromise and persuasion to de-escalate the tensed and dissatisfied groups in the society.

Cameroon

The stability in Cameroon is undermined by the above mentioned conflict with Nigeria. Both countries are unwilling to compromise and are prepared to use violence to enforce their case.

The situation can easily get out of control if one side is being pressured by the other or even by the perception of being threatened. Negotiations and some confidence building measures are needed to de-escalate the conflict between the two countries.

The tensions are running high at times between the two opponents but war could be avoided until the end of the courtcase if both countries could built some trust between eachother. The increase of forces in the border area will however reach the opposite. It will be very likely that some kind of violence will start between Nigeria and Cameroon in 2000. The conflict will be most likely confined to the Bakassi peninsula and both countries will do their utmost to conquer the disputed territory if any violence would start.

Kenya

Kenya is threatened by the overspill from the conflicts in Somalia and in Ethiopia. Groups of Somali fighters are crossing the border with Kenya to steal cattle and other goods of need in Somalia. On the other side their is a vivid gun trade between the countries which could led to more instability in Kenya, as problems between tribes and tribes and the government are more likely to be fought out with arms.

The independence fight of the Oromo people in Ethiopia is also threatening the integrity of Kenya as Ethiopian forces are violating the border between the two countries in pursuit of rebels of the OLF.

These problems will continue in 2000 and are likely to increase as the problems in Somalia are becoming worser and more violent.

Congo – Brazzaville

The stalemate between the forces of the former elected president Pascal Lissouba and the forces of the sitting government of Denis Sassou Nguesso will not be changed in 2000. None of the goups is strong enough to eliminate the other and therefore the conflict between the two will continue. The fighting might be small scale and low level but for that it will take very long before the conflict between Lissouba and Nguesso will end. Especially if there are so many other interests which are so valuable. Like the oil production in the coastal area.

The interference of outside parties , the oil companies, the UNITA and the Angolan government will make the conflict continue. The regional defence pact with the Democratic Republic of Congo, DRC, and Angola to assist eachother in military and security concerns will not bring the opposing sides to the negotiation table. The intention of Angola to send more forces to the Congo to eliminate the bases of the UNITA will not be benificial to the Congo it will extent the problem. The Angolan forces are there to solve an internal Angolan problem. It will not weaken the rebel forces of the former elected president Pascal Lissouba by much who also receives some support from the UNITA. The additional foreign forces on Congo territory will prolong the conflict, create more chaos, division in the country and estrange the population from the government of Nguesso.

The Democratic Republic of Congo, DRC

The Democratic Republic of Congo, DRC, the former Zaïre, has experienced since the fall of the corrupt Mobotu regime a civil war were former allies are now the biggest opponents. The conflict could continue that long because of the fact that nearly all neighbouring countries are supporting a side. All neighbouring countries have their own interest for supporting a side and they just want to see their interests protected.

The current president of the DRC, Laurent Desire Kabila, could eject Mobuto with the support of Rwanda, Uganda, Angola, Namibia and Zimbabwe. Rwanda and Uganda want to eliminate the bases of rebel organisations operating out of the DRC. Rwanda wants to eliminate the Interhamwe militia, the Hutu dominated organisation held responsible for the mass slaughter of the Tutsi minority and moderate Hutus. Uganda wants to eliminate various organisations, like the West Nile Liberation Front, Allied Democratic Forces, National Army for the Liberation of Uganda and the Uganda National Rescue Front II, who all are operating out of the DRC. Angola wants to destroy the logistical support lines of the Unita in the DRC. Namibia supported Angola as the Unita is operating occasionally out Namibia and because the Unita is supporting rebel organisations in Namibia. And Zimbabwe acts out of protection of commercial interests. Which became even larger as Kabila became president.

After Kabila became president he soon forgot his major backers and played the nationalist Congolese card and started to suppress the Tutsi population and other minorities like the Banyamulenge and the Mai-Mai living in the DRC and allowed, or did nothing against it, the Interhamwe and other organisations to operate out of the DRC.

This made Rwanda and Uganda very angry and a new rebellion against the regime of Kabila was started. The rebellion received quickly support from Burundi as Kabila also allowed Hutu rebels out of Burundi operate out of the DRC.

The rebellion emcompasses four major organisations which more or less cooperate with eachother. The Banyamulange organisation, the Mai-Mai militia, the Rassemblement Congolais pour la Democratie, RCD, and the Mouvement de Liberation Congolais, MLC. The RCD and MLC received most support, including armed forces, by respectively Uganda and Rwanda.

The rebel forces and the armed forces of Uganda and Rwanda could quickly conquer large parts of the north-eastern and eastern part of the DRC. The south-eastern part has been since under pressure by the rebel forces who are slowly enlarging their territory.

Kabila received support of Angola, Namibia, Zimbabwe, Chad and the Sudan. Angola and Namibia supported Kabila to destroy Unita activities in the DRC. Zimbabwe to protect its commercial interests in the DRC. And the Sudan suppported Kabila because the SPLA was receiving support out of the DRC.

With the support of his allies Kabila could delay the offensive of the rebel forces and as nearly the whole eastern part of the DRC is controlled by the rebel forces some kind of stalemate, statua quo, have been reached. All involving countries had reached their goals, a number of countries, Angola, Namibia and Zimbabwe, had pressing internal problems and the support for Kabila started to become very expensive. The supporting countries started now looking for a diplomatic solution and came to an agreement in the Lusaka accords which included a cease fire. Kabila agreed but was not happy about it. The major rebel organisations, RCD and MLC, were more or less forced to accept the Lusaka accords and the cease fire but were placing doubts on its usefulness.

Lusaka accords are doubtfull and complicated because Kabila did not like the agreement, the RCD was forced to accept, the smaller rebel organisations like the Mai-Mai militia and the Banyamulenge were not included, the Rwandan and Burundi Hutus and the Ugandan rebel organisations were left out, Unita was also not included and the implementation is unclear, e.g. who and when to enforce the accords. It looked like a relieve but the security concerns of Uganda, Rwanda and Angola are not met by these accords. The neighbouring and supporting nations wanted the agreement because the conflict became to expensive and there were more pressing internal problems. Only the MLC liked the idea of a diplomatic settlement but was at the same time afraid of unsecere motives of Kabila.

As expected the cease fire did not hold for long as Sudanese transport planes were bombing villages under the control of the MLC, Zimbabwan forces attacked positions of the RCD, forces of Kabila were trying to retake territory lost to the MLC and RCD, Kabila is resisting the implementation of the accords and finally Kabila used the cease fire to recover and rearm. The DRC has acquired SS-1C and SS-1D, Scud B and C SSM, from Iran and Su 25TK strike fighters from Georgia. And as mentioned before the Hutus, Ugandan rebels and the Unita were continuing their operations in the DRC. The Lusaka accords and the cease fire are now more or less death.

Kabila wants to destroy the rebel forces in the east and is counting on the continued support of Angola and Zimbabwe. But both countries have pressing problems of their own so their support should not be taken for granted by Kabila. Uganda has placed his forces in the border region on alert because of the violations of the Lusaka accords by the DRC. Rwanda and Burundi are still involved with operations in the DRC to secure their border. And the Congolese rebel organisations are also returning to the war mode.

The regional defence pact with the Republic of Congo and Angola to assist eachother in military and security concerns will not stabilise the situation. It is concluded with the motive to solve internal problems in each country. There is no real common thought behind it. The DRC wants to secure the support of Angola, Angola wants to eliminate the UNITA bases and forces in the DRC and the Republic of Congo wants to secure its common border. If one of the parties have reached their goal, the commitment to the pact will be over.

The conflict in the DRC will continue as no party is willing to compromise and all supporting nations are only interested in the fulfilment of their own demands.

Uganda

The situation in Uganda is tensed as their involvement in the DRC will continue in the coming year. The security concerns of Uganda could not be solved by the Lusaka accords. There are still a number of rebel organisations who continue to resist the government of Musevenie and are actively fighting the government all over Uganda. A number of them also use the DRC to recover and rearm and as base to attack targets in Uganda.

The relations with the Sudan have recently improved after a peace agreement was reached between the two countries. According the agreement the two states would cooperate in affairs concerning the military and security. And more importantly they would not allow rebel forces to operate from eachother’s territory, e.g. the SPLA in Uganda and the LRA and UNRF II in the Sudan.

The organisations fighting the government are numerous and often they might be small but they are very violent. They commit bomb attacks all around Uganda, are attacking towns and villages, harass road traffick and commit many atrocities against the population. The following organisations are fighting the government. The Lord’s Resistance Army, operating mainly in the north of the country with support of and out of Sudan. The West Nile Liberation Front, operating in the Ruwenzori mountain range and the DRC. The Allied Democratic Forces, ADF, operating in the west of Uganda. The National Army for the Liberation of Uganda, NALU, operating in central and western Uganda. The NALU is linked to the government of former president Milton Obote and is believed to cooperate with the ADF. The Uganda National Rescue Front II, UNRF II, operating firstly out of the DRC but later moved to Sudan as the situation in the DRC became untenable. And finally the Citizen’s Army for Multiparty elections.

The situation in Uganda has become even more complicated as some tribes support the rebel organisations. The Pygmies are for example suspected of collaborating with the ADF. And there are still the anomisities between the many different tribes in Uganda. The Bokora and Mathenniko tribes recently clashed in Uganda and a revanche is just a matter of time.

Uganda will remain an unstable country in 2000, the involvement in the DRC, the internal differences, opposition against, with the government and the tribal quarrals will be the causes of the continuation of violence.

Rwanda

The involvement of Rwanda in the conflict in the DRC will continue as there are still large groups of Hutu rebels, members of the Interhamwe movement, some members of the ALIR, and former Rwandan army troops, in the DRC which are using every opportunity to weaken the Rwandan Tutsi government. They destabilise the DRC and are attacking Rwandan armed forces on both sides of the border. The Interhamwe and another organisation the Armee de Liberation du Rwanda, ALIR, also operate in Rwanda where they receive support from Hutus who returned to or who still are living in Rwanda. They attack not only government buildings and officials but also Tutsi villages, infra-structure and other economic targets. Where as the Interhamwe is a radical organisation the ALIR is much more moderate and more likely to receive wide support from the Hutu population.

As long as the security along the common border cannot be guaranteed Rwanda will keep their armed forces in the DRC to control the rebel forces. Because the activities of the rebel forces in the DRC are closely connected with the insecure situation in Rwanda, it will be important to end the outside influences.

The internal situation is far from secure. Beside the external influences of Hutu extremists in the DRC there is also increasing trend of an internal opposition against the Tutsi government. The internal opposition is divided into a moderate group, ALIR, who wants to achieve changes by mainly political activities and only have limited military objectives. And a group which is associated with the Interhamwe movement. This group is dangerous as it supports the attacks of the Interhamwe and they recruit new members. And there is still a large group of dissatisfied and underprivileged Hutus in Rwanda which are the right potential for any organisation who wants to improve the situation of the Hutus.

The conflict in Rwanda is far from over as there is to much internal and external conflict potential. The differences between the Hutus and Tutsis are still very large and there does not seem to be any improvement achievable on the short to medium term.

Burundi

The situation in Burundi seems to be deteriorating as the number and intensity of the guerilla attacks in the country are increasing. The military coup of the Tutsi minority, replacing the elected Hutu government, in 1996 has not brought more security nor stability to the country. The number of casualties is increasing by the day. Over 200.000 people have been killed in the ethnic conflict since 1993.

The Hutu guerilla fighters, the armed wing Forces Nationale de Liberation, NFL, of the rebel movement Palipehutu, are using the DRC and Tanzania as a recovery / support base. From there and out of Burundi proper they start their raids against the Burundi government. The threat of the guerilla increases as the Burundi armed forces are not able to defeat the guerilla with their hit and run tactics. And the refusal of Tanzania to cooperate or allow Burundian forces enter Tanzanian territory if they pursue rebel forces make it even more difficult to defeat the Hutu rebel forces.

Even the doubtfull tactics of the goverment of relocating large groups of Hutus into protected areas did not deliver the wanted results. The guerilla activity is increasing and will continue to do so on the short to medium term. As with Rwanda the ethnic cause of the conflict and the instability and volatility in the whole region will make an end to the conflict nearly impossible to accomplish with violence, e.g. armed forces.

Tanzania

The security situation in Tanzania is much more stable as with its neighbours. The largest threat to Tanzania will be the possible intervention of Burundi forces on their territory if they are pursuing Hutu rebel forces. But this would be disadvantageous to Burundi as they would clash with Tanzanian armed forces. This would weaken Burundi fighting power and they would loose a logistic support line.

Zambia

The situation in Zambia is not very stable. There are external and internal threats which might destabilise Zambia. Externally Zambia is threatened by a possible overspill of the conflict in the DRC. As the fighting between the rebel forces against DRC government forces and the Zimbabwan armed forces is closing into the Zambian-DRC border withdrawing forces have used Zambian territory to escape from the rebel forces.

Zambia has further been put under pressure by transports crossing Zambia to support the Zimbabwan forces fighting in the DRC. The rebel forces might disapprove of the logistical support crossing Zambian territory. They might consider it as hostile and if they would reach the border they might be tempted to cross the border and stop the transports for good or simply to punish Zambia for allowing the transports to cross Zambian territory.

The internal problems of Zambia could cause some big troubles in the future. There is ever more resistance to the autocratic rule of president Frederick Chiluba. The president has been concentrating power around his position and is supressing all opposition against his rule. This will indirectly weaken the position of the government.

The integrity of Zambia has been thereby threatened by the actions of the Barotse Patriotic Front. The Barotse Patriotic Front has been fighting for an independent Barotse country in the south-west of Zambia. The number and intensity of actions of the Barotse Patriotic Front are increasing and even get a trans-national character as the Zambian Barotse Patriotic Front is supporting the independence movement in the Caprivi strip in Namibia. The people in the Caprivi strip are of the same etnic group as the people living in Barotse country.

There will be more conflicts and violence in Zambia on the short to medium term. Zambia’s semi-neutral position will not protect it from an overspill, on the contrary, it will be held responsible for supporting the other side. The fight of the Barotse Patriotic Front will also increase as the Zambian armed forces are not very strong and the Barotse people determined to improve their position. The Zambian armed forces will be able to control the situation on the short term but an overspill from the conflict in the DRC and/or an alliance between the Barotse Patrotic Front and the Unita in Angola might lead to an overstretch.

Angola

The peace agreement between the main opponents in Angola, the government, e.g. the Movimento Popular de Libertacao de Angola, MPLA, and the Uniao Nacional para la Independencia Total de Angola, UNITA, the main and largest rebel movement did not last very long. The lack of trust, the differences about the sharing of power and wealth, the unwillingness of the UNITA to disarm its elite units, the ursurpation of power by and the rearmement of the MPLA and the military encirclement of UNITA territory by government, MPLA, forces led to the renewal of the civil war.

The hawks in the MPLA and UNITA both wanted the continuation of the war and were against the peace process. They thought the conflict could be best solved by the use force, and that it could be done by force. The involvement of Angola in the conflict in the DRC was the first step to beat the UNITA. The deployment of Angolan forces in the DRC was aimed at eliminating the logistical support lines of the UNITA. If they would be destroyed it would be far easier to destroy the UNITA in Angola. The defence pact with the Republic of Congo and the Democratic Republic of Congo has been created to fulfil that goal. The elimination of UNITA bases and support in both countries. Angola wants to tighten the relations to commit both countries in eliminating the UNITA.

This strategy to weaken the UNITA did not work out that well. The UNITA support base in the DRC could not be destroyed that easily and the conflict in the DRC took longer as expected, the end is still not visible nor expected in the coming six to nine months. The involvement in the DRC is expensive in financial terms and in manpower. And the UNITA has not been really limited in their actions in the DRC.

The military operation against the UNITA in Angola had to be postponed because of the involvement in the DRC. The UNITA used this weakness and started spoiling operations in various parts of Angola and reinforced their positions.

The UNITA was much stronger than expected and the operations against the UNITA proved to be much more difficult and complicated. An easy victory was not possible as both sides had been rearmed and introduced new and more advanced capabilities like strike aircraft and attack helicopters.

The major difference has been that the moral is and was high in UNITA forces, UNITA could gain the better strategic positions because of its headstart and its strategy is partly superior, hit and run tactics and only a few positions to govern and protect. The MPLA forces were on the other hand tired, badly trained and had a low moral. The improvement in armament could not cover those shortages, weaknesses.

At first, the UNITA could gain several victories and put the Angolan government forces under pressure but the war in Angola lost its momemtum as the MPLA was holding the coastal strip and the largest cities and the UNITA controlling most of the countryside. The old division which happened before and will place the government at a beneficial postion.

It will give the Angolan government, MPLA, an opportunity to take the initiative away from UNITA. New offensives can be directed at certain areas which will force the UNITA to react with the consequence of being more vulnerable. And secondly the attrition warfare will be very costly to the UNITA as the embargo and Angola’s activities in the DRC might make the supply more difficult. And finally the increased cooperation with Namibia and partly with Zambia gave the government an opportunity to corner the UNITA and hurt them badly. For the first time since over a decade Angola is controlling the border region with Namibia and is occupying Jamba, one of the HQs of the UNITA. This will put the Angolan government, armed forces, in more difficult position as they will have to guard these large areas against UNITA activities which will resume very shortly after they have regrouped from the government offensive.

It will be however impossible to defeat the UNITA in one or more offensives. The structure and the scale of the UNITA have made it very survivable and very difficult if not impossible to defeat on the short to medium term. And certainly not with one or two major victories on the UNITA or against there headquarters. UNITA never cared to much about the possession of towns, they want to indirect control large tracts of land and be able to disrupt government movement and control.

The UNITA is however not the only opposition movement in Angola. The Angolan government has to deal with another threat to its integrity. The oil rich enclave of Cabinda, the financial life line of the Angolan regime, is under threat by the demand of the Frente de Libertacao do Enclave de Cabinda, FLEC, Cabinda Enclave Liberation Front, for independence of the oil rich province from Angola. To enforce their demands the FLEC has its armed wing the Forcas Armadas Cabindesas, FAC, Cabinda Armed Forces. The FAC is committing attacks on government institutions and officials and it will not take long before the all important oil exploration and infra structure will be targeted.

The effectivity of the FLEC and FAC has not been very good. The actions were low in number, not very succesfull and a leader of the FLEC could be arrested. The FLEC and FAC could be controlled until now but will pose a threat for the future.

Angola will experience a lot of violence in the coming years. The UNITA is far from defeated, the FLEC/FAC is becoming more dangerous, the involvement in the DRC will take a number of years if Angola is willing to support Kabila to the end and the government is only favoring the military solution in the conflict with the UNITA and FLEC/FAC.

The conflict will be devasting for the country and especially the population. As the government, MPLA, and the UNITA only care about their political and military positions, the people will pay the price with hunger and starvation. The international community will be left with the task to keep the people alive.

Namibia

The stability in Namibia is threatened by the involvement in the conflict in the DRC, an overspill of the conflict in Angola and by the activities of an independent movement in the Caprivi strip.

The involvement in the conflict in the DRC is out of solidarity with the government of Kabila, to support Angola and most importantly to limit the power and options of the UNITA which occasionally use, illegaly, Namibian territory. The involvement is limited in the objective/commitment but is nevertheless expensive financially and in manpower. The involvement in the DRC is costing approximately US $ 150.000 dollar a day as there are around 3.000 troops deployed in the DRC, nearly a third of the total of the Namibian armed forces. It is therefore threatening the stability as it limits the capabilities of the Namibian government to develop the country and provide security.

Despite the involvement in the DRC the security of and in Namibia is still threatened by an overspill from the Angolan conflict into Namibia. The UNITA has used and will use Namibian territory in withdrawals and offensives against the Angolan government and to support its forces. This is a violation of the Namibian borders and it undermines the integrity and stability in Namibia. Especially because the UNITA is supporting the independence movement in the Caprivi strip.

The Namibian government is therefore increasing the forces in the border region with Angola and is cooperating with Angola to eliminate the UNITA. There has been increasing military cooperation to limit the movement of the UNITA and to eliminate the UNITA in the border region. In a combined operation Angola could force the UNITA to leave the border region with Namibia and they even could conquer Jamba, a HQ of the UNITA. Zambia was allegedly also supporting these operations as the Unita is also supporting the Barotse Patriotic Front, which in turn is supporting the independence movement in the Caprivi Strip. It has to be seen if the region will become any safer as the UNITA will soon return with increased guerilla activities and the many unpaid, unmotivated and bored Angolan soldiers in the region will not make the region any more secure.

The most direct threat to the integrity of Namibia are the activities of the Caprivi Liberation Army, CLA. The CLA is demanding secession of the Caprivi strip from Namibia. To enforce their claim the CLA is committing attacks on government institutions and officials.

The CLA is at the moment relatively weak, with the deployment of additional forces to the Caprivi strip and a curfew of a few weeks most resistance could be broken. But with support of the UNITA and the Barotse Patriotic Front this could change very quickly. The CLA has the potential to become much more dangerous.

The mutual support between the three organisations, UNITA, CLA and Barotse Patriotic Front, is understandable. Firstly, the people in the Caprivi strip, south-west Zambia and south-east Angola are of the same ethnic group. And secondly, the goal of the three groups is to weaken their governments to enforce their policies.

Namibia will experience instability on the short to medium term. The deployment of approximately 3.000 troops in the DRC, 2.500 in the Caprivi strip, the forces along the border and the involvement in the cooperation with the Angolan government is stretching the Namibian capabilities, financially and militarily, to the utmost. Any increase or improvement of the capabilities of the opposite parties will dramatically undermine the stability and security in Namibia. A withdrawal from the DRC or from the border to improve the security inside Namibia will not solve the problem. The result would be that the support to the CLA and the intrusions of the UNITA will become easier and larger and in turn more dangerous to the stability of the country.

Zimbabwe

The stability of Zimbabwe is threatened by the internal dissatisfaction with the involvement in the conflict in the DRC. The involvement of over 14.000 Zambabwan forces in the DRC to protect commercial interests of a small group of wealthy Zimbabwans is very expensive and difficult to legitimatize. In an economically weak and bad performing Zimbabwe the people start to oppose to the involvement.

The opposition to the involvement is growing and the government of Zimbabwe, already not very popular because of its internal and economical policy, is becoming ever more endangered. It already had to use the armed forces to disperse villagers in Matabeleland who occupied commercial farms which were confiscated under the programme to resettle peasants. The commercial farms were however given to high government officials. It will be therefore the question how long the opposition can be supressed and controlled in such a situation before the political opposition turn violent.

Zimbabwe is on the brink of popular revolt and if the policy of the government does not change on the short term it will become very nasty in the new millennium. Every dollar to and body bag returning out of the DRC involvement is another nail to the coffin of the Zimbabwan government.

South Africa

The situation in South Africa is totally different from the above mentioned countries. South Africa is not involved in any conflict and does not actively support one side of a conflict. South Africa likes to be, as the regional superpower, some kind of broker of peace. It is the economically and militarily strongest country in the region, as such and because of the peacefull transition from apartheid to democracy, they want to spread their ideas and influence.

The problems of South Africa are economical, a below average performance with high unemployment and a very high crime rate. Especially the high crime rate is a worrying factor. It creates unsafety and an unwillingness to invest.

The crimes are about the normal crimes, if crimes can be normal, like robbery, murder, rape and so on, but there is also a more worrying kind of crime. Crimes in the realm of terrorism.

There are two developments which create some instability in the country. First the islamic vigilante group PAGAD, People Against Gangsterism and Drugs. PAGAD started in Cape Town as an organisation who guarded certain neighborhoods against the spread drugs and street crime. The methods were sometimes crude but the number of crimes decreased. In time the organisation became larger but also more agressive and militant, islamic fundamentalistic. This changed the course of PAGAD as politics and religion became more important. PAGAD had become a militant organisation controlling areas with little to none tolerance for other ideas. By this time PAGAD was just one of the other gangs or organisations with the goal of changing the government.

PAGAD attraction and success has diminished since it became more militant and radical. They can be controlled by the security forces but they remain dangerous as occasional attacks against government or other targets which do not get their approval will continue on the short term. Continued operations of the security forces against PAGAD and an improving economy will mean the end of PAGAD in its current structure on the medium to long term.

The second threat to the stability in South Africa are the groups of former guerilla fighters who are dissatisfied with the government policy, the progress of the black population and that they did not receive any important and well paid position within the government. Those groups attack farms of white farmers, terrorize villages and commit bombings in the cities. It is unclear if there is some organisation behind the attacks but they are dangerous as they are difficult to identify and apprehend.

The threat of small groups of former guerilla fighters will continue until the position of the black population and the groups can be improved. But this will take some time.

Swaziland

The small kingdom of Swaziland is having some problems with a small terrorist organisation called the Tigers. The Tigers disagree with the current political hierarchy and government policy. To change the government the Tigers have committed several attacks against government officials and the king.

The small scale of the Tigers and the lack of popular support will keep the Tigers a small and unconvincing organisation but nevertheless they are dangerous because their attacks could become very damaging if somebody really important would get killed.

The Tigers will proof to be very difficult to eliminate as they are small and unknown. They will be able to commit several attacks before they will be eliminated.

Comores

The island group of the Comores remains an unstable country. The division between Grand Comore and the economical succesful islands of Anjouan and Moheli remains in place as Grand Comore is unable to retake the runaway islands.

The military coup d’etat on Grand Comore complicated the affair as it will make any international support for and cooperation with Grande Comore impossible. Anjouan and Moheli will also be not very inclined to rejoin the federation, even with more autonomy.

Whatever the statements of the military to return power to a civilian government if the island group is re-unified, the Comores will remain a unstable country.

It will be highly unlikely that there will be any violence on the short term as Grand Comore is hardly in a position to retake the island by military force. On the contrary Grand Comore will become weaker as it was dependent on the financial support of the other two islands.

The Indian Subcontinent

The Indian subcontinent is a large and diversified area with many and large contradictions. It is a very unstable area with at least one to many internal conflicts in each country and not to forget a highly unfriendly relationship between two of the largest countries in the region which also happen to be the new nuclear powers.

Nearly every kind of conflict can be found on the Indian subcontinent. Religious, ethnic, national, independence or territorial conficts, or a combination of them, are present in this part of the world.

Afghanistan

The conflict in Afghanistan has entered in 1999 its 19 anniversary and it seems very likely that it will not end in 2000. After the Soviet occupation, communist regime versus the various islamic liberation groups, liberation versus liberation group, the conflict has entered the next phase Taliban, islamic fundamentalists, versus the Northern Alliance, the organisation of moderate liberation groups with roots to the Soviet occupation.

The islamic fundamentalistic Taliban succeeded in gaining control of a large part of the country. With exception of some small parts in the north, north-west and larger parts of the north-east, the whole country is under firm control of the Taliban.

The Taliban, originally an organisation of radical islamic fundamentalisitic students of Pathan origin, educated, trained and armed by and actively supported with men and leadership out of Pakistan, could relatively easy gain control of the Pathan dominated south of the country and introduce their interpretation of an islamic state. A very conservative interpretation of the islam with little to none space for other ideas or another interpretation of the religion. But it has been effective in the south of the country to create some peace and stability.

This way of living was acceptable to the Pathan south but met resistance when the Taliban moved north and met the Hazara, Uzbek and Tajik peoples. Different ethnic groups and with another understanding of religion. The Hazara, the Uzbek nor the Tajik peoples were not very found or impressed by the Taliban and resisted any influence or leadership from the Pathan Taliban.

After some setbacks the Taliban received more support from Pakistan where after they could take the capital and by treason they could eliminate one of the two large opponents in the conflict. The Jomesh-i-Milli of Abdul Rashid Dostam was defeated by the Taliban and it seemed as nothing could stop the Taliban in their crusade. The by now large presence of Pakistani support, including officers and soldiers, made the Taliban offensives succesfull. Except for some small parts in the north, north-west and the north-east, Afghanistan was under firm control of the Taliban. Even as only three countries recognise the regime of the Taliban, Pakistan, UAE and Saudi Arabia, and the international community condemn the Taliban for the violations of human rights, the involvement in the narcotics trade, the harboring of Osama bin Laden and the support of all kind of militant Islamic fundamentalistic organisations, the Taliban was and is in power and receive support from the country which was and is needed to continue the war, Pakistan.

1999 was the year when the Taliban offensives lost their success. The several opposition movements could succesfully stop the advance and at a number of places and they could even force the Taliban to withdraw. The remaining opposition movements in the country had been united in the Northern Alliance under the leadership of Ahmadshah Massoud. The three largest and important groups in the opposition are the Tajik Jamiat-e-Islami of Ahmadshah Massoud, the Hazara people with the Hizb-i-Wahdat Islami and the remainders of the forces of the Uzbek Jomesh-i-Milli of Dostam.

The strength of the opposition became visible as important areas around Kundzu city, the Shomali plains, Pansjir valley in the Hindu Kish mountain range, Dar-i-Suf valley and the areas around the capital Kabul could be held or retaken, the important airports of Bagram, Fauzabad and Khwaja Ghar could be held and the all important Amu Darya river remained under control of the Northern Alliance. The strong grip on these areas will allow the Northern Alliance to withstand the Taliban and even conquer more areas in the north.

It will prove to be very difficult to beat the Northern Alliance as the Taliban forces are demoralized, thinly spread in the north and they are highly dependent on Pakistani support, which is at the end of 1999 and at the beginning of 2000 only delivering the most necessary products like food and ammunition. But no men, officers, advice nor heavy weapons are delivered.

The coup d’etat in Pakistan, the tensions with India and the internal problems of Pakistan forced Pakistan to evaluate its involvement in the Afghan conflict.

The objective of Pakistan to establish a Pakistan friendly regime in Afghanistan might become difficult as the Northern Alliance have become stronger and the Taliban weaker. Only the resumption of massive Pakistani support, including more Pakistani armed forces, could change the situation. But even this might not be enough to beat the Northern Alliance. The Taliban and the Pakistanis are fully aware of the difficult situation as they do not talk anymore about the elimination of the Northern Alliance but about the marginalisation of the Northern Alliance. The situation is at the turn of the century very difficult and stressed as a succesfull spring offensive of the Northern Alliance could break the unity in the Taliban and if the Taliban would fragment the influence of Pakistan in Afghanistan would be marginalised so destroying five years of Pakistani support and foreign security policy and creating a crisis in Pakistan.

A diplomatic solution, renewed negotiations, between the Taliban and the Northern Alliance could be possible in the second part of 2000 to protect the positions of the Taliban and of Pakistan. It all depends on the spring if Pakistan would increase its support to the Taliban with the launch of an all-out offensive to push back the Northern Alliance. Depending on the success of the offensive the Taliban could either continue the war and hoping to defeat the Northern Alliance or start after a promising beginning negotiations and reach a political agreement with the involvement of the Northern Alliance in the future government, this to the displeasure of Pakistan. As Pakistan would be less influential in this solution but at least its efforts would not be lost.

But this would be preferable to the other option. If the Northern Alliance would be able to retake Kabul and establish firm control over the northern part of Afghanistan. This would most certainly mean the end of the Taliban as we know it. The Taliban would fall apart into a fragmented Taliban with a number of Pathan warlords each controlling their own little territory with a more or less Taliban ideology and a dominating alliance in the northern part of the country. And most likely very unfriendly towards Pakistan as each warlord will change sides as it fits and Massoud never has been that charmed about Pakistan.

But in any case the war in Afghanistan will continue in 2000. If serious negotiations would begin in the second part of 2000 the conflict could be ended and for some time peace would be possible. The other option is that the conflict would continue as both sides are not strong enough to defeat the other side and the supporters of each side will continue at some level to support their side. If the Russian or better Soviet occupation could not destroy Massoud, the Taliban will certainly not be able to defeat Massoud.

Pakistan

The situation in Pakistan is very complicated. Pakistan is a conflict ridden country which would only need a small spark to explode. The political situation has become very dangerous after the military took over power. The political elites have been sidelined and the reactions of their clientele, clans, remains uncertain. The political differences between several etnic groups, the clans and the role of the islam in the Pakistani society is still as explosive as before. The problems with the economy are far from solved. The involvement in Afghanistan and the support for the separatists in Kashmir is obvious and very large, if not to large, has become very dangerous. And finally the relations with India are very unhealthy and worsening by the day.

The economy of Pakistan has had and will show a very bad performance. There are no signs of any improvement. The economic infra-structure is outdated. The companies are unprofitable, unproductive and innovation is an unknown quality. Corruption and nepotism are the most succesfull institutions.

The internal situation in Pakistan is far from stable as there are differences between the people living in the north and south of the country. Between the original population in the south of the country and the immigrants which entered the region after the independence from Great Britain. The continued conflicts between the several clans in each region of the country, like the strained situation between the different ethnic and religious groups in the province of Sindh. And finally the destabilising activities of the islamic fundamentalists which want to change Pakistan into an Islamic republic, in which they were very succesfull during the government of former prime-minister Nawaz Sharif. Secular institutions were eliminated, islamic elements introduced and internal and external fundamentalistic organisations received support from the goverment.

The worsening external relations are mainly caused by the involvement in the conflicts in Afghanistan and in Kashmir. Since a number of years Pakistan is actively supporting the Taliban regime in Afghanistan who are involved in a civil war about the control of the country, especially the northern mountainous parts. The political objective of Pakistan was to create a Pakistan friendly Afghanistan. After massive Pakistani support the Taliban was able to conquer large parts of the country and nearly destroyed the opposition. The opposition could however recover and as the Northern Alliance they were able to push back the overstretched Taliban forces. Pakistan is now faced with the difficult decision to increase the support for the Taliban and hope to win and marginalise the Northern Alliance in the coming year or be defeated and face a hostile Afghanistan. This could create some internal problems as the political elites and the population would have great difficulties in accepting such as waste of resources if the Afghanistan adventure would not deliver a positive outcome for Pakistan. A possible diplomatic solution between the Taliban and the Northern Alliance could save some of the influence, investments, but it would be a solution which would leave a bad taste.

The involvement in the Kashmir conflict, the support of Pakistan of the Kashmiri freedom fighters or terrorists, what depends on the viewpoint, is worsening the relations with India. Pakistan wants to re-unite the Indian part of the Kashmir province with Pakistan as they consider Kashmir a part of Pakistan. The support of the Kasmiris used to be covert but with the occupation of some hills in 1999 in the Kargil region the Pakistani support became larger and very obvious. The Kashmiris occupying the hills could only be removed after some heavy fighting and political pressure. The large and obvious Pakistan involvement in the occupation enraged India which always suspected Pakistan of involvement in, support to, the Kashmiri organisations fighting the Indian security forces. The relations with India deteriorated and has since become worser as India is convinced of the bad intentions of Pakistan towards India.

Not only the relations with India became worser but also the relations between the military and the Pakistani government became very bad. The forced withdrawal from the Kargil region was much to the disappointment of the military as they finally had a direct entry into the Kashmir conflict. Militarily the occupation of the hills in Kashmir could continue for one or two months before the Indian armed forces could force them out of the area. And this at very high costs in men and material. In the eyes of the Pakistani military it would have weakened India and gave more opportunities in other parts of Kashmir.

The government was in these circumstances hardly able to govern the country as the bad performing economy, the internal differences between several groups and clans, the machinations of the political elites and their clientele, the strained relations between the government and the military, the problems in Afghanistan, the deteriorating relations with India and the actions of the government to accumulate ever more power and sidelining other institutions made efficient government impossible.

At the end of 1999 the military took over power to solve the problems with the economy and in the political realm. A triumvirate of general Pervez Musharraf as the chief executive, lt.-gen. Mahmoud Ahmed as the director-general of the all powerful ISI, Inter-Services-Intelligence, and lt.-gen. Mohammad Mir Aziz Khan as the Chief of General Staff became the leaders of the country who would solve the problems in the country. They stated that they will eliminate the corruption, end the internal conflicts, introduce law and order, improve the economy and improve the relations with India and Afghanistan to the benefit of Pakistan.

It will be very difficult to solve all those problems as it will be nearly impossible to unite the several groups in the society. Every group have their own interests and the demands of the muslim fundamentalists will collide with all other groups, ethnical, clan and political. The relations with India are likely to worsen as the involvement in the Kasmiri conflict will increase to force India to accept international mediation to solve the conflict. And Pakistan is convinced that if mediation will be brought in, some kind of referendum will be needed, their cards will be the better ones. The relations with Afghanistan could also become worser as an increased commitment of Pakistan is needed to improve the position of the Taliban but the outcome is very uncertain, so in the end they could loose more then they could gain. And finally a recovery of the economy will be equally difficult to achieve as growth will need stability and this is still far away. There is simply to much instability.

Pakistan will experience great problems in the coming year. Especially externally, the tensions with India could lead to the brink of war or even a short war. Both countries will not tolerate anything from the other side. International political pressure and the possession of nucluar devices could keep it from escalating but the tensions remain very high and dangerous.

Internally Pakistan has some better prospects. The military rule could introduce more stability as any unrest, internal strive between different ethnic groups or clans can be put down very quickly. A failure in the Afghanistan policy will not lead to chaos or unrest as the military can put the blame on the former government and they can better control any kind of unrest. And the corruption can be better fought at least at the beginning of the military rule. To solve the problems will be impossible on the short to medium term but some improvements are possible. But volatility will be present in 2000.

India

The largest and most populous country of the Indian sub-continent is facing a number of problems. India has a number of internal problems which could cause some instability and a large problem with its neighbour Pakistan and a minor problem with China.

The distrust between India and Myanmar which verged on open hostility has been recently buried by increased diplomatic relations including military exchanges and the agreement not to support or allow rebel / opposition movements to operate from eachothers country, e.g. rebels from Assam and Nagaland in Myanmar’s Sagaing Division and Chin rebels in India’s Mizoram province and pro-democracy activists in India’s Manipur province.

India has changed its policy towards Myanmar as it wanted to reduce the Chinese influence in Myanmar. As the pro-democracy movement and the independence movements could not force Myanmar to some changes, India decided to coopeate with the government of Myanmar to limit the Chinese influence and activities in Myanmar.

The advantage of India is that the economy has and will deliver a moderate to good performance in the year 2000 and that the prospects for the next five years are promising. There are however a number of problems in India which undermine the growth potential. Like the dislike of foreign investment, involvement, in the Indian economy, or at best involvement on Indian terms, is equally damaging as the legal, infra-structural and mental shortcomings in the Indian economy and society. But political changes and the determination to improve could overcome many of these problems and then Indians full potential could be realised.

The external problems are the most threatening to India. They have the biggest impact on the Indian society and economy. The costs of the tensed situation, the costs of maintaining and modernising large armed forces, not to speak of the possibility that a threat turns into war, is draining the resources of the country. Resources which could be used elswhere to develop the country.

The biggest threat to India are the bad relations with Pakistan. This threat is so explosive as it is combined with the Kashmir problem. One of the many internal problems of India about autonomy or independence of a region.

India had already two wars with Pakistan and in between and after the wars there never was a really peaceful situation. The main cause of the stressed relations with Pakistan are about the Indian part of the province of Kashmir. So an internal Indian problem became externalized as Pakistan supported their brothers in religion in Kashmir. The Pakistani support and involvement increased as the Kashmiris increased their resistance to the Indian presence in the province. The claim of Pakistan that Kashmir is a part of Pakistan and that India should held a referendum, as promised after the independence from Great Britain, led to a further deterioration of the relations. The result has been a spiral of distrust and violence between India on one side and Pakistan and the Kashmiris, fighting the Indian government and in their eyes the occupation, on the other side.

The majority of people living in Kashmir are demanding independence or the re-unification with Pakistan. They are supporting one of the several organisations in Kashmir who are fighting the Indian government. The most active organisations are mostly fundamentalistic, receive generous support from Pakistan and are pro unification with Pakistan, like the Hizbul Muhadjedeen, Islami-Jammiat-Tulba, Harakut-ul-Mujahedeen and the Jammu and Kashmir’s People’s League. There are about 10 Pakistani backed organisations in Kashmir and they are organised in the Muttahida Jihad Council.

The more moderate organisations are demanding independence and maybe a re-unification with Pakistan and therefore receive less support from Pakistan, like the Jammu and Kashmir Liberation Front, Mahaz-i-Azadi and the Kashmir Muhadjedeen Liberation Front. There are about 16 organisations in Kashmir who demand some form of independence and some of them would even settle for autonomy and they are organised in the United Jehad Council.

Both organisations are however not very strong as the organisations are fragmented about the demands and the policy to execute. And none of the proposals, autonomy, independence or unification, is likely to receive a majority.

The occupation of some hills in the Kargil region demonstrated the activities and vigour of the Kashmiri organisations who oppose the Indian government and the scale of the support the Kashmiris receive from Pakistan. The support given to the Kashmiris was very large and included not only weapons, ammunition, cold weather clothing and advanced cummunication and electronic equipment but also intelligence support, indirect air support as Indian aircraft should not pass or come to close to the border and even artillery support. India was therefore enraged about the actions of Pakistan and not only India but also the whole world did become aware of the rather doubtful involvement of Pakistan in the Kashmir conflict.

The Indian armed forces had difficulties in eliminating the Kashmiris from the hilltops and would have need another two to three months if a diplomatic settlement would not have been reached. The Pakistani involvement in the conflict in general and in particular in the occupation of the hilltops became obvious as Pakistan could order or persuade the Kashmiris to withdraw from the Kargil region.

The combination of the external threat, Pakistan, with an internal conflict, the Kashmir problem, has created an highly dangerous affair. Which will lead to more conflicts between Pakistan and India. As with any action in Kashmir India will suspect Pakistani involvement. The wish to retaliate against Pakistan will become larger with every attack on Indian security forces or against Indian interests. The mutual suspicion of both countries towards eachother could easily lead to an escalation in 2000. A small and short war, clash of forces in the border region, is not unlikely but it will most likely not escalate as the possession of nuclear devices and international pressure will force both sides to the negotiation table and an end of hostilities.

The other external problem of India is with China. India has some differences with China about the demarcation of their border. India has a claim on the Aksai Chin plateau, close to the Siaachen glacier in Kashmir and about the borderline in north-east India. Both claims exist but are not enforced by India. The relations between the two countries have improved after the first unfriendly reactions, because of the Indian nuclear tests and the Indian identification of China as one of its main threats, have been subsided and put in the right dimensions.

Beside the Kashmir problem India has a number of other problems, conflicts, with groups who demand independence for their region. All these organisations, the activities of those organisations, cause considerable problems but not on the scale as the Kashmir conflict. All those independence movements resorted to the use of violence to enforce their objectives. Indian police, para-military, government officials and government institutions are occasionally attacked by these groups which cause a number of deaths and wounded each year. The intensity and the consequences of these attacks are relatively low. The organisations are to small and lack the internal and external support to make a larger impact.

Regions in which those independence movements are active are Assam state where the United Liberation Front of Assam, ULFA, is trying to liberate Assam. The ULFA is also using bases in Bhutan and in Myanmar. Bhutan is unable to eliminate the ULFA camps in the country, but even with those bases they are not able to force the Indian government to leave the region. The bases create only better fighting conditions but do not deliver the much needed support. The bases and support out of Myanmar ended after both governments improved their relations and promised not to support nor allow foreign organisations to operate out of their country. And Assam state itself is questioned by the Bodo Liberation Force and the Bodo Security Force, who are fighting for their own Bodo state. The Bodo separatists do not only attack the Indian government but also muslim migrants out of Bangladesh. In Tripura state the National Liberation Front of Tripura is fighting for independency. And in Nagaland the National Socialist Council for Nagaland is fighting for independency.

As mentioned before all those organisations are to small to make an impact. They are all more or less controllable by the Indian security forces in the region. The unrest in the state of Bihar is a much bigger danger to India. This is not a question of secession but about the political, economical and social position of the people living there. The higher and lower castes are in conflict with eachother. The poor lower castes want to improve their living conditions, illegally occupy farmland and demand better working conditions.

The rich higher castes use their private security forces to suppress the lower castes, to retake the farmland and secure the status quo. The lower castes in return are supported in their fight by the radical left, the Naxalite rebel force and the People’s War Group, PWG. The situation escalated as ever more violence was used by both sides and the local government was unable to control the situation. Federal government forces were send in to stabilise the situation. Which they did and now there are only occasional attacks of the Naxalite rebel force and the PWG. This will not solve the tensions in the region as the problems are still existent but it creates an opportunity for the government to introduce some improvements in the living conditions of the poor.

This conflict between the poor and the rich is much more dangerous as it could happen all over India. The differences between the two are very large and if there is a small deterioration of the position of the poor, they could look and find allies in the radical left organisations of the country. Together they could become a danger to the government of India. In the year 2000 we might see more social unrest which could end up in active resistance against the government and the division of wealth. But not on a scale wich would threaten the existence of the government or the integrity of the country.

Sri Lanka

The civil war in Sri Lanka is still continuing. The government has not been able to defeat the Liberation Tigers of Tamil Eelam, LTTE, who are fighting for an independent Tamil country, Eelam, in the north and north-east of Sri Lanka. On the contrary the fighting has increased after months of relatively quietness.

The government could not exploit the territorial gains they had made in the offensives of 1995 with the recapture of the Jaffna peninsula and ended with the attempt in 1997 to open a land passage, highway A 9, to the peninsula. Which operation was ended in 1998 after they realised they could not beat the LTTE at that moment. The fighting power of the LTTE was dimished after the fall of the Jaffna peninsula but they could stop any further advances of the government. The government could neither increase the territory nor stabilise the hold on the Jaffna peninsula. All logistic support to the peninsula have to be flown in or be delivered by sea.

The LTTE could recover in 1998 some territory like the important coastal town of Mullativu or the assaults on Killinochi pressing the government at the important Elephant Pass. At the end of 1998 until the end of 1999 the LTTE limited their operations to recover, rearm, and mobilise, train, more men to resume the fighting. The LTTE increased their fighting power by the acquisition of a small air force, a couple of helicopters and light airplanes, and more importantly Igla SA 16 or SA 18 anti-air missiles, Multi-barrel Rocket Launchers, 122 mm atillery, 122 mm mortars and Spigot anti-tank missiles.

As the government thought the LTTE was badly hit by the last attacks in 1998 in reality they used the time to improve their forces. Which the government learned at the end of 1999 on the hard way by the succesfull attacks and seizure by the LTTE of Paranthan and Vettilaikerni, as the LTTE overran military positions at Kanakarayankulam, Mankulam, Odusuddan, and Nedunkerni and by the heavy battles at the Elephant Pass. The government needed to use all means available to stop the advances of the LTTE. The government has been humiliated by the recent successes of the LTTE.

The front lines are now more or less stabilised. None of both sides is able to defeat the other side on the short to medium term. The LTTE showed their strength and more important that they are now able to launch conventional assaults from the regions they control. As nearly equal fighting powers it will stretch the war even longer.

The conflict in Sri Lanka has turned into a war of attrition. The government and the LTTE will continue to fight eachother. There might be occassional gains but they will be lost or the other side will gain some territory in another part of the country. Both sides are willing and able to continue to fight as none of the sides is exhausted. It has become more difficult to attract and retain manpower but there are still resources available. And both sides continue to receive support from their friends. The LTTE from their Tamil brothers in India and covert support from India and Sri Lanka from Pakistan, China and training from the U.S.A.

The first signs have however surfaced that negotiations might be possible but both sides demand to many conditions before the negotiations could start. Beside the conditions, the recent successes of the LTTE on the battlefield will not make it any easier.

The LTTE is for example not willing to negotiate with the government of president Chandrika Kumaratunga. And the government originally demanded that the LTTE would lay down their arms before negotiations would be possible and they did not want a third party to be involved in the mediation. But those demands seem to be lowered.

As long as these conditions remain in place and each side attain occasional small successes in the battlefield a diplomatic solution will prove to be very difficult to reach. The activities of Norway to promote peace, to bring both sides to the negotiation table has not led to a breakthrough. The only advantage is that the two are talking to eachother and this could lead to the first steps of a peace agreement. Especially if the first signs of exhaustion will become visible. In the mean time the war will continue into the year 2000 with now and then an increase in fighting but with no decisive gains for one of both sides.

Bhutan

The small mountainous country of Bhutan is experiencing some problems with the government policy to force all non Bhutanese, living in Bhutan since 1950, to leave the country. This created some dissatisfaction in the population as a large part of the population is from Assam or Indian descent. Their friends or relatives might be forced to leave the country. This caused some unrest but not any use of violence.

Bhutan is facing a larger problem with the overspill of Indian secessionists crossing the Bhutanese-Indian border and establishing camps in the border region. The United Liberation Front of Assam is using Bhutan, especially the Samdrup Jonghkar region, as a safe area to recover and regroup their forces for new operations in India. Bhutan is unable to control nor expell the ULFA fighters from their territory. This weakness could be exploited as the ULFA might be tempted to increase their control over the region and stay forever or unify the region with Assam if they would be able to take over power in the Assam province.

Nepal

The other mountainous country in the region located between China and India. Nepal has been an absolute monarchy before the pro-democracy movement forced the government, the king, to abdictate his absolute power.

As democracy became a matter of fact in Nepal other opposition groups became more active. Two of them are causing more problems as they left the path of political opposition and entered the road of violence to reach their goals.

The United People’s Liberation Front of Nepal and the Nepal Communist Party, a Maoist organisation, are opposing the government and want to change the political system in the country. Both organisations are occasionally attacking government officials and installations to enforce their claims. The level and intensity of the attacks are relatively low but the Nepalese security forces are not able to defeat the two organisations. Both organisations receive support from outside, from ideological brothers out of India, which increases their resistance and survivability on the longer term.

Nepal will continue to experience some violence on the short term as the security forces are not able to control the violent opposition, at least as long as the capabilities of the security forces are not improved. The offered amnesty for the members of the Nepal Communist Party in exchange for the renouncement of violence and the start of negotiations is fruitless as long as the communist still believe they can take over power. As long as the government, security forces, can not control the communist they will never accept a political solution.

Bangladesh

The poorest country in world is facing beside the problems with the economy, the islamification pressures of muslim fundamentalistic organisations and the every year returning natural disasters occasional incursions of its souvereignity as fighters of the United Liberation Front of Assam, ULFA, are crossing their borders.

The peace agreement with the Chittagong hill people seems to hold and will probably hold in the year 2000. We do not expect any return to violence on the short term.

The activities of the islamic fundamentalistic organisations like the Harkat-ul-Jihad will continue as before. The government is paying attention to the demands of these groups and is trying to meet the demands. This at the cost of alienating the minority groups of Hindu or Buddhist belief. Until now the government could find some kind of compromise to keep the minorities pacified but this will get ever more difficult. On the short term we do not expect any problems between the islamic majority and the minorities in the country as the rights and freedom of the minorities ae not yet directly threatened and other problems, economical and disasters, is keeping the government from any large and intrusive changes in the society.

The incursions of the ULFA fighters are rare and of small scale but occasionally Indian security forces are following the ULFA fighters. This have led to clashes between Indian security forces and Bangladeshi border patrol units.

The border clashes are most likely to decrease as the relations with India have improved in 1999. The tighter control of the border areas by the Bangladeshi border patrol will limit the activities of the ULFA in the region. Which became obvious as a leader of the ULFA, Anup Chetia, had been arrested and sentenced in Bangladesh for illegally entering and staying in Bangladesh.

Mynmar / Burma

Burma is a military dictatorship, the State Peace and Development Council, SPDC, is ruling the country. The SPDC is a group of military officers, the leadership of the armed forces, who govern the country as some kind of private business. They do not have justisfy their actions and they can do what they consider as appropriate.

The government of the SPDC is not popular nor accepted by the society. They have alienated the population by their ruthless and corrupt regime. There is resistance against the regime from parties which gained some seats at the last elections but these were not recognized by the SPDC. Those parties continue to press the regime for changes but they have not been succesful. And in any case, the security forces of the country are able to suppress any unrest or revolt against the regime.

The external problems of Burma / Myanmar have all been solved more or less or have a low priority. The years of distrust which verged on open hostility between Myanmar and India has been buried. Diplomatic relations are restored, including military exchanges, and the agreement that the governments of both countries will not support nor allow rebel / opposition movements to operate from their territory, e.g. the rebels from Assam and Nagaland in Myanmar’s Sagaing Division and the Chin rebels in India’s Mizoram province and the pro-democracy activists in India’s Manipur province. The border differences with Thailand are in exchange for the end of support to the Karen people solved in the advantage of Thailand. The largest threat for Burma / Myanmar is internal.

The largest and most active resistance comes from the Karen people and to a lesser extent from the Chin, Shan and Kachin people’s living in the north, north-east and east of the country. The Karen, Chin, Shan and Kachin are minorities in the country and are fighting the government for more autonomy, independence, since many years.

The Karen organised themselves in the Karen National Union and have an armed force, Karen National Liberation Army, which is fighting the Burmese government. After Thailand curtailed Karen activities in Thailand the Burmese armed forces could force the Karen out of their strongholds but they were not able to defeat the Karen.

The Shan and Kachin people’s are repecticely organized into the Shan State Army and the Kachin Independence Army. Beside the ethnic based oppostion movements there is also the Islamic Front Rohingya. The Karen, Chin, Shan and Kachin are fighting for more autonomy or independence from Burma. The Islamic Front is fighting for a change of the regime as the Islam is a minority in Burma. The Islamic Front wants to improve the living conditions of the muslims in Burma and secretly they might dream about the islamification of the country.

With the exception of the Karen, KNU and KNLA, the other movements have been marginalised by the offensives of the armed forces of Burma. Only the remnants of those organisations remain fighting the government. The activities, the number and intensity, of the attacks of those organisations are low and will remain so on the short to medium term if they do not receive support from a stong supporter.

Only the Karen remained a mentionable enemy for the government. They are the largest of the minorities and could find, received, some support from friends abroad. In 1999 the Karen could recover, regroup and start new offensives, guerilla attacks, against the armed forces. The Burmese government is still not able to fully control the Karen inhabited regions. Even the very harsh suppression methods could not break the spirit of the Karen people but the government has pressed the Karen out of their strongholds in the country. Greatly reducing the fighting power and abilities of the Karen. The Karen will continue their struggle in the new millennium even if their chance to win remains as unlikely as before. Only a change of government and/or massive international pressure and support for the Karen could change the situation for the benefit of the minorities.

The Asian – Pacific region

The Economy

The Asian – pacific region is a large area covering China in the north, the small Pacific island nations in the east and south-east and Australia and New Zealand in the south to south-east. The Asian – Pacific region has a very large potential in economic development but an even larger potential in conflicts.

The fast and miraculous economic development of Japan in the seventies and eighties, of the tiger economies, Taiwan, South Korea and Singapore in the eighties and nineties, of the tiger cubs, Thailand, Malaysia and Indonesia, in the nineties and finally the economic expansion of China in the nineties promised to turn the twenty-first century into the Asian century. The story turned regrettably into a drama. This large and fast economic development ended in the burst of the bubble in Japan at the end of the eighties and the Asian financial and economic crisis of 1997-98.

Japan suffered from an overvalued stock and real estate market, industrial overcapacity and from lower economic growth figures. The Asian financial and economic crisis was caused by the overvalued currencies, real estate prices and stock market. By the inadequate government and business structures and management. And finally by the unability the repay the US dollar nominated debts.

In short, the economic development of East and South-East Asia had to change to a lower gear as the high growth figures were not sustainable anymore. The financial systems collapsed and the economies experienced for the first time in many years a standstill or even negative growth. This could happen as the parity with the US dollar ended. As the investments in unproductive consumer goods, overvalued real estate and stocks could not be financed anymore and became unprofitable. As the export of goods and the import of investments declined. As the mostly short term government and commercial US dollar nominated debts could not be serviced. As the generously (over)financed companies had smaller sales, turned unprofitable and were unable to pay their debts. And finally as the mismanagement and nepotism practices were uncovered by the above mentioned developments.

Notwithstanding the many problems which existed and exist in the Asian – Pacific area, it remains an area with a great political and economical potential. It will most likely become the third large and important political and economical region in the world, but not as strong and influential as firstly anticipated in the theories of the Asian century. The development into an important region will only take some longer than thought just before the Asian crisis. If ofcourse, they can work out the problems they all more or less have.

China, or Asia for that matter, will not be the large and strong political and economical power as predicted by some before the Asian crisis because they will have problems to sustain the economic growth and development on the medium to long term. The first phase, the development from an agricultural society, combining a large and cheap workforce with the availability of capital and low technology, into an urbanized industrial society is relatively easy. The second phase is much more difficult to accomplish. The society has to change from an industrial into a high-tech industrial-service society. Economic growth will become smaller as markets become more developed and mature. A different kind of workforce will be necessary, more educated. Leading to a division in the society of educated and none to little educated and consequently to unemployment of the none educated. Employment will therefore become more expensive. Capital on the other side will be more scarce. And most important and difficult to achieve is that the low technology industry / products has to be replaced with high technology which is not that easily available and therefore has to be developed and invented in the country or region. This will automatically limit the growth opportunities in China and Asia in general.

Politics and conflicts

The financial problems and the economic downturn have one advantage, it lessened the chance that a problem in the region could become violent as the countries had other things to do then to solve the differences they had or could have with eachother. The economy received a priority above other affairs. Economic performance is very important in Asia as the governments in Asia have very often connected their position, their right to rule, to the economic performance, well being, of the country.

There are many potential conflicts as the region, the borders of the countries, are designed after the former colonial borders. As such several regions and people were simply divided and separated. The Dayak and Iban people’s in East and West Kalimantan are for example traditional migratory farmers and fishermen. In doing so they cross the border without bothering to ask for a permit by the respective authorities. The same is valid for Sebatik island, Serawak and Sabah all sensitive questions between Malaysia and Indonesia. But China and Vietnam, Thailand and Laos, Thailand and Malaysia, Thailand and Myanmar/Burma, Malaysia and Singapore and Indonesia and Singapore have similar problems about the demarcation of their land borders. All countries have a vested interest in solving these problems by diplomacy as no country is willing to play the nationalistic card as separatists, rebel movements and drug lords have often exploited the uncertain situation and used the disputed territories as sanctuaries to operate out.

But not only the landborders are questioned the martime borders are also unclear. There are differences between Vietnam and China, Malaysia and Indonesia, Thailand and Malaysia, the Philippines and Indonesia and Singapore with all its neighbors.

The 1993 workshop on managing potential conflicts in the South Chinese Sea has been very helpful in managing the maritime differences between the countries. The workshop introduced methods to defuse potential conflicts and tensions by the establishment of a permanent telephone line between the high ranking officers of the six countries, e.g. irritation and escalation should and could be prevented by the contacts between the military staffs.

Beside the maritime borders there is still the looming question of the Spratly island group, called Nansha by the Chinese, which are claimed by China, Taiwan, Vietnam, the Philippines, Malaysia, Indonesia and Brunei. The Spratly island group consists out of approximately 430 islands of which most are inhabitable. The main reasons for claiming the island group are that the area is suspected of possessing large reserves of oil and gas and it has rich fishing grounds.

None of the interested parties is at the moment nor on the medium term able to enforce their claim politically, economically nor militarily. The Taiwanese proposal to exploit the Spratlys as a Joint Venture between the seven countries plus Japan and the U.S.A., with the last two furnishing the majority of the US $ 14 billion development costs, met therefore wide acceptance. Even from China who already stated before their willingness to solve the problem by negotiations in a regional context. Economic development has on the short to medium term a higher priority than the enforcement of political claims.

And finally the Paracel island group which is contested by China and Vietnam. The Paracel islands consist out of 30 islands which are claimed by both countries. China and Vietnam occasionally clashed about the islands but this could be quikly de-escalated. The granting of a research contract to an American company by Vietnam caused some irritation with China but this was later on solved by the workshop methods and the signature of the provisional agreement between China and Vietnam for a common scientific research programme on marine biology. The problem between the two countries is not solved but the immediate threat has been removed.

There is a lot of conflict potential in the Asian – Pacific area. But at the moment there is a genuine interest to solve the external conflicts, as described above, in some peaceful mode. None of the mentioned states are willing nor able to start a conflict about the territorial and / or maritime claims on the short to medium term. There are however some other external hot spots which could turn into conflict/war on the medium term. They will be described in the country chapters. The most imminent threat are the internal problems of a number of countries which will also be listed in the country chapters. The Asian – Pacific area is not as dangerous as it looks at the first glance as the largest problems are of an internal nature but a number of these conflicts have enough potential to destabilise the whole region.

North Korea versus South Korea

Even after several decades of a cease fire their still could not be concluded some kind of peace agreement between the two Koreas. Both countries remain suspicious towards eachother. North Korea, nearly bankrupt with a close to starving population, is turned into an armed camp on guard against a South Korean invasion or preparing for an offensive to conquer the South. South Korea is much more relaxed and is on guard against any northern maneuvres, including the espionage and destabilisation activities of mini-submarines and insertion of special forces units, but is paying more attention to the improvement of its air force and navy then to improve the capabilities of the amy. The air force and navy are much more important to protect the sea lines of communication, the economy, which have a priority in South Korean policy. The threat out of North Korea is existent but is not imminent as the economic situation in North Korea limits its abilities to attack the south. The threat from piracy or a conflict between China and Taiwan is more present and likely than an invasion from the north.

Nevertheless the tensions between the two countries remain high and at times increases as North Korea is staging one of the ever rarer military exercises, is launching one of its long range missiles or is boasting its nuclear, biological and/or chemical capabilities. Especially the NBC threat is the most threatening but it is hardly useful in conquering, invading, the south. The NBC and the missile capabilities are more useful in persuading and manupulating the U.S.A. to receive more money, investments and respect then as a threat for the south.

China

China has weathered out the Asian financial and economic crisis fairly well. The protected market and currency protected it from the negative external influences. The inflow of foreign capital and the export decreased but there was no economic instability as in many of the other south-east Asian countries.

The slower growth rate, slightly under 8 percent, has been more damaging as it became increasingly difficult to transform the rural workforce into an industrialised urban workforce and to close the unprofitable and inefficient large state owned industries. Larger number of unemployed and homeless people have become a reality in the cities in the coastal region. The situation in the inner provinces deteriorated equally as natural disasters, closures of state owned industries, uemployment, taxes and corrupt local and federal government officials and in general the unfair treatment through the government made live very difficult for the people. The people ventilated their discontend by large demonstrations and revolts, there have even been bomb attacks against the government in some cities and provinces.

The social instability starts to become much more dangerous as it undermines the government. The government’s reaction to this kind of unrest is limited to the use of force as the government does not have the instruments at hand to implement any improvement on the short term. China is faced with a number structural problems in the economy, trade and accounting regulations, business structure and the financial position of many companies. These need to be solved before any real development and growth can set in.

Beside the social-economic induced problems China has two internal problems which could, in a worst case scenario, damage the integrity of China. But at least it will cause some problems, instability, and will drain the financial resources badly needed for the economic development of the country. Two minorities in the west and south-west of the country, the muslim Uigur people of turkish descent in the mineral rich Xinjiang province and the Tibetians in Tibet, are not pleased to live in China. The Uigur people would like to be independent and the Tibetians want their independence back which they lost as China invaded and occupied the country in 1950.

The Uigur people resist the Chinese occupation by living in a kind of shadow society practicing their own culture and religion and by committing occasional attacks on Chinese government officials and institutions. The Chinese government brutally suppresses any Uigur resistance or even any expression of the Uigur culture. Additionally the Chinese government promotes the relocation, migration, of Han Chinese into the Xinjiang province with the goal to change the demographics.

The resistance of the Uigur people will continue in the new millennium. The improved relations with their Islamic neighbors, like Kyrgyzstan, and the support of muslim fundamentalistic organisations will improve the abilities and capabilities of the Uigur people to resist and attack the Chinese government forces.

The Tibetians will also continue their resistance against the Chinese occupation. The brutal Chinese suppression methods, as used in Xinjiang and in Tibet after the invasion until five to ten years ago, will not be necessary as the Tibetians will most probably not use violence or open and large resistance against the Chinese government. China will apply a different policy in Tibet and will try to convince the Tibetians by funding economical development in Tibet that belonging to China has it advantages. To increase the Chinese claim on Tibet, China will continue to promote the migration of Han Chinese into the region.

The resistance in Tibet will be mainly political opposition and some civil disobedience. There might be some violent assaults of inpatient young Tibetians but this will be relatively rare. The leadership of the all powerful Tibetian religion will lead the opposition. The leadership can not be eliminated as the Dalai Lama, the leader of the religion, is operating out of India and its successor just fled to India. So the Chinese cannot hope to have a China friendly Dalai Lama in control in the future. The second in command, the Pancha Lama, is detained in Beijing, so also not very helpfull to convince the Tibetians about the attractivety of belonging to China.

The strength of the Tibetian resistance is the international activities of the Dalai Lama. The Dalai Lama is organising support for the Tibetians and is giving China a bad press.

On their own or together none of the conflicts are able to beat the Chinese government but they will be a nuisance and damage the Chinese international position. But if the social and economic situation in China keeps deteriorating leading to massive civil unrest and instability, the options of the Uigur people and the Tibetians will improve.

In the perception of the Chinese government there is another destabilising factor in China but as usually the government and security forces have with fervour arrested and jailed the leaders and its most active members. This dangerous organisation is the Failun Gong, a semi religious organisation, a religious sect, based on Confucianism and Buddhism. The Failun Gong wants to learn the people a way of living, with morning gymniastics, how to treat other people and so on. The problem with the Failun Gong is probably that the Chinese government can not control the leader of the sect as he is living in New York, U.S.A., another very dangerous and undermining fact, and the communist party has no role in the Failun Gong, a position unthinkable for a party who used to control every aspect in the society. Other semi-religious organisations, like the Chong Gong, are also under surveillance of the government and will most likely be forbidden or put under tight control of the government.

China vs. Taiwan

After Hong Kong and Macau had returned into the fold of China at the end of the last century, there was only one territory left which is not under control of Beijing, Taiwan. Taiwan, the renegade province, in the perception of China, has to return to China. China will and have used diplomacy to persuade Taiwan to return. Taiwan should accept, like the Hong Kong did, an one country two systems method.

If this would not work or if Taiwan would declare independency China would certainly try to force Taiwan to accept the Chinese sovereignity over Taiwan. China would use, as it already does, political and economical pressure and if necessary even military pressure to regain control over Taiwan.

The tensions between China and Taiwan soared in 1999 as Taiwan declared that it would be better to treat the relations between the two as between two countries. This declaration fell just short of a formal declaration of independence. China, as expected, reacted fiercely on the words out of Taiwan. China repeated its threat that if necessary China would use force to recover the renegade province. The coincidental start of army and naval execercises in the region adjacent to Taiwan fitted perfectly to the Chinese threat. This kind of gunboat diplomacy should impress Taiwan. Just like the fact that the structural changes and modernisation of the Chinese armed forces in the Nanjing and Jinan region, the 1st Group Army, receive a priority. Or the deployment of missile forces opposite of Taiwan.

The Chinese threat is however hollow as China does not have the capabilities to invade Taiwan in the coming ten years. China might be able to occupy a couple of small islands close to the Chinese coast but a full scale, succesful, invasion of Taiwan is considered the capabilities of the Chinese army, land and airborne forces, air force, fighter and transport aircraft and navy, ships and amphibious forces, out of the question. They simply lack the capability to do so.

China’s abilities are limited to the missile threat and some limited embargo operations against Taiwan. China would be able to damage the Taiwanese (export) economy but they can not do anymore. But Taiwan could do the same to the Chinese economy. The Taiwanese navy and air force are capable to stop all, or better most of, the shipping and air movements in the coastal region of China. This embargo policy would destabilise the whole region as both countries have become important pillars in the Asian economy.

If Taiwan has any ambitions of becoming an independent nation with none whatsoever political claim on mainland China, they will have to act in the coming two to three years. The first indications of their want of independence have become visible and they are essentially one step short of the formal declaration of independence.

It is now the moment to do so, China is now, objectively, unable to react violently and will be limited to threats and none or little actions. Some foolish or desperate actions, like an embargo, air strikes, missile launches or a limited attempt to invade, are not impossible and should not been excluded. The political leadership in Beijing might feel compelled to do something impressive and there might be an escalation. This could eventually lead to a short and intensive war but international pressure and the realisation that it is impossible to gain a decisive advantage on the short to medium term will lead to a cease fire.

Beyond 2005 it will become ever more difficult to get away with a declaration of independence. Beyond 2010 it will be impossible as China would be able to invade Taiwan and most likely no country would oppose, or better, do not want to get involved and restrict themselves to diplomatic comments.

China is forced to wait another 10 years before the strategic balance has shifted in their favour. The modernisation and organisational changes within the armed forces will be finished at that time, the economy could have been improved and the political influence of China in the world will most likely be increased to persuade the international community to tolerate the Chinese agression.

The Philippines

The Philippines never became one of the tiger or tiger-cub countries it would like to be. The Philippines have developed very slowly, they used to be in a preferential kind of system as the U.S.A. had its large air force and naval bases in the country. This not only brought many dollars and jobs but also improved trade relations. With the withdrawal of the bases much of that was lost. The dollars and the jobs were gone and more importantly the Philippines lost their kind of special status in the U.S.A., they were now one of many friends instead of a special friend.

In this precarious economic situation the Philippines were faced with an increasing internal threat to the stability and integrity of the country. Since many years the Philippines were suffering from two movements which had and have the desire to change the Philippines. The threat changed during time from intensity but it remained a constant in the Philippines society. After the U.S.A. had withdrawn a new round started.

The withdrawal of the U.S.A. initially improved the relations between the communist National Democratic Front, NDF, and the government. The NDF has and had the goal to change the Philippines into a people’s republic. To reach this goal NDF’s armed wing New People’s Army, NPA, have fought a long and at times very hard battle with the government. As the authoritarian rule of president Ferdinand Marcos was replaced by a democratically elected president and the U.S.A. had withdrawn there was an improvement in the relations between the NDF and the government. It seemed for some time as the NDF would become a regular political party in a democratic system.

As the negotiations between the government and the NDF got more complicated and the Philippines government sought to improve the relations with the U.S.A., to get more economic support and support in the then worsening relations with China about the Spratly island group, and signed the Visiting Forces Agreement with the U.S.A., the outlook for a positive conclusion with the NDF disappeared.

The NDF broke off the negotiations and the NPA returned to fight the government with arms instead of words. The NPA regularly attacks government officials and installations. But it is a low level, low intensity, fight as the NDF wants to start new negotiations with the government as a new president is elected in 2004.

The integrity of the Philippines is more threatened by the activities of the islamic population on Mindanao and the surrounding islands. Since many years there have been a fight between the islamic population and the government. The islamic population wanted more autonomy or even independence for the areas inhabited with muslims. Several organisations are fighting and have fought the government. The moderate Moro National Liberation Front, MNLF, supported by Malaysia and the more radical Moro Islamic Liberation Front, MILF, supported by Libya have for many years fought the government. The MNLF and later the MILF signed a peace agreement with the goverment in which Mindanao and some other muslim inhabited regions would receive more autonomy. This seemed the end of the conflict but the hardliners organised themselve in or joined the Abu Sayyaf Group. The Abu Sayyaf Group is an extremist islamic organsation supported by Pakistan and Afghanistan and demand independence for the islamic inhabited areas of the Philippines. The Abu Sayyaf Group broke every peace agreement, cease fire, which was reached with the goverment.

The situation has improved in the Philippines as the NDF will remain relatively quiet and the MNLF and the MILF have reached an agreement with the government. This agreement has a fair chance to survive as it offers the muslim population a large share in the power to govern the areas in which they constitute the majority.

The Abu Sayyaf Group will be the main danger to the peace on Mindanao and surroundings. They will continue to attack the government but their impact will be limited as they lack the scale and support in the population. At least on the short term.

On the medium to long term they might become a danger if the peace agreement does not work out as planned and the people on Mindanao suffer from economic hardships. The extremism of the Abu Sayyaf Group will be very attractive for the dissatisfied population and the staunch supporters of the group, Pakistan and Afghanistan, will fuel and make violent resistance possible. This will most likely destabilise the region and will turn the region in a civil war like situation.

Indonesia

The country who suffered most under the Asian economic and financial crisis has been Indonesia. Not only the currency and stock market collapsed but also the government and the majority of the commercial sector. This led to civil unrest in many parts of the country fuelling ethnic hatred between the muslim majority and the wealthy Chinese and Christian minorities and rejuvenating the autonomy / independence sentiments in the island, over 17.000 islands, and people, over 360 different tribal and ethnic groups with over 250 languages, rich country.

The authoritarian regime of former general Suharto was first replaced by his successor of own choice B.J. Habibi and later on by elections by president Wahid, Gus Dur. Habibi could stabilise the economy and the currency but could not initiate any larger growth. The economical induced violence between the islamic population and the wealthy Chinese minority could be stopped but the dissatisfaction in the population about problems in the economy are still present. As the ethnic and religious inspired violence which surfaced after the beginning of the financial and economic crises.

Indonesia has a lot of problems with the many people’s living outside the main island of Java. The non-Javanese population is demanding more autonomy or even independence from Indonesia. This could be a threat to the integrity of Indonesia.

The first region has already left Indonesia. East Timor has after a long bloody battle, a referendum, violence between the East Timorese and the Indonesia backed pro-integration/anti-independence movement and the intervention of the UN peacekeeping force Intervet, International Force East Timor, received independence. The country has to be rebuilt from scratch as everything what could eventually be taken away has been transported back into west-Timor or Indonesia, what could not be moved was burned or destroyed and the most abled and skilled part of the East-Timorese society left as they are Indonesian. An additional note on East Timor, East Timor will not be stable or secure on the short term. The people are impatient and the first clashes between different groups, clans, in East Timor already happened and will most likely happen more oftern in the future. This will make the reconstruction and the work of the UN peacekeeping force very difficult.

There are still many regions in Indonesia which are dissatisfied with the current situation. It will be most likely that violence will continue or will emerge in the future. And any increase of violence and the gaining of independence will be bad for Indonesia as many territories are responsible for the exportrevenues. The territories are possessing the most valuable resources like oil, gas and gold. So difficult to loose in these economic bad times.

The following regions are currently hit with violence and where there is a strong demand for independence or autonomy. On Sumatra in the regions of Aceh and Riau, on East Kalimantan, on South Sulawesi, on the Moluka island group, on Lombok and on Irian Jaya.

Sumatra, possibly the most wealthy island in resources, is divided. The original populations in the provinces of Aceh and Riau are wanting to become independent from Indonesia. Especially the people of Aceh, who have a tradition of resistance, are fighting the Indonesian government. The most active organisation is the Gerakin Aceh Merdaka, GAM, who has been succesfully fighting the government. The GAM receives support from Libya and are therefore very good trained and armed. The GAM has become a dangerous foe for the Indonesian armed forces. Only the use of the most brutal suppression methods of the special forces of the Kopassus could temporarily pacify the region. But as they left, partly under international diplomatic pressure, the activities of the GAM increased and attacks became the order of the day again. This followed a policy of large demonstrations against the Indonesian occupation. This placed the Indonesian government in a rather difficult position and forced them to do something to pacify the area and the country. Which will be rather difficult.

The problems with the economy, the widespread ethnic violence, the increasing resistance against the government, international demands and the new president forced the government to change policy. There are for the first time serious talks between the government and the GAM in Jakarta. Economically Indonesia cannot afford to loose Aceh, politically it could trigger more independence activities and the resistance and possibly a coup d’etat of the still powerful military who are against any change in the composition of Indonesia.

The fighting against the Indonesian government will continue on the short term but on the medium term some kind of autonomy, close to independency, or even full independence are very likely. The increased, resistance in Aceh, the ethnic and religious induced problems all around Indonesia, the bad performing economy and the pressure of international diplomacy will force Indonesia to implement some changes.

The GPK in the Riau province will profit from the changes in Indonesia. The resistance and violence are not yet that intense as in Aceh but it is increasing. If the position of Aceh changes, Indonesia will also be forced to change the position of Riau.

The population in southern Sumatra, many of Javanese origin, also demand some changes. They do not want independence but more autonomy, a decentrilisation of power. They are not willing to continue to see much of the money they generate flowing to Java without getting much in return. If this is not changed on the medium term, 3 to 5 years, the civil unrest will turn violent.

The population of Irian Jaya is also discontent with the presence of the Indonesian government. Since the arrival of the Indonesians they were againt it. The resistance is organised in the Organisasi Papua Merdaka, OPM, and they demand independence from Indonesia. The OPM has not been very active. The OPM is a relatively small organisation and badly armed and trained but they receive support form the majority of the population. The OPM occassionally attacks the Indonesian security forces or government installations and commit some rare high profile actions like the kidnapping of westerners to receive additional attention for their cause.

The population on Irian Jaya demand independence and became hopefull as a referendum on East-Timor was organised and they subsequently received their freedom. This will not be very likely on Irian Jaya as the security forces can easily control the situation. Unless the OPM receives more support from abroad to increase the resistance there will be no changes on Irian Jaya. The OPM will do therefore their utmost to improve their abilities to resist the Indonesian government. On the medium term we will see an increase in violence in this region unless the political situation would change, some form of autonomy could maybe improve the situation on Irian Jaya.

As the above mentioned problems are largely political / territorial differences Indonesia is facing another threat. As Indonesia has many different ethnic and tribal groups and one large dominating religion, the islam, and many smaller religions, the different groups started to fight eachother over actual or perceived unfair or wrong treatment. Most of the fighting is between the islamic majority and the Christian minority.

On East Kalimantan the original populations, for example the Dayak and the Iban, are fighting immigrants from Sulawesi and Java. On South Sulawesi the original population is at odds with immigrants from Java. On Lombok the islamic population is burning churches and assaulting Christians living on the island. The same is happening on the Moluka islands group, the Spice islands.

The original population on the Moluka islands are Christian. Over the years many immigrants, from Java and Sulawesi which are muslims, have moved to the Moluka islands. The immigrants and the Indonesian government were never very popular because the population of the Moluka islands always wanted to be more autonomous or even independent from Indonesia.

The Asian economic and financial crisis destroyed the artificial stability on the islands. As the economy collapsed and the central government started to loose grip, the differences and demands of the people living on the islands escalated. The Christians and the muslims clashed about many things including the fear of the muslims of a resurfaced wish of the original population for more autonomy or independence. In this tensed situation little was needed to start a fire. A muslim or Christian could be treated unfair by the other group, one group was economically more succesful, old pains surfaced, property could be destroyed, in short a group felt discriminated, all these could be the reason to start an attack on the other group. Many of those clashes, burnings, lootings, beatings and killings happened since the start of the Asian crisis.

The government has been unable and unwilling to end the ethnic and religious fighting as the security forces regularly sided with the Javanese and/or muslims. The violence will continue as the conflict received a political bias as most of those regions started to demand more authority, or autonomy, from Jakarta. Jakarta in his turn was even less inclined to establish order on the several islands in the expectation that they would ask Jakarta for support in restoring order. What started as support for their religion and ethnic group ended in an instrument to re-establish the authority of the central government in Jakarta.

This will most likely back fire as Jakarta is not considered as a fair protector. The populations of many islands have already, recently or some time ago, experienced the brutal, inequal and unfair treatment of the security forces and the central government in Jakarta. Jakarta is essentially sidelined, it is considered part of the problem and party in the conflict. Especially after the mass demonstrations of muslims in Jakarta calling for a Jihad, a holy war, against the Christians living in the country and in particular on the Miluka islands.

The new millenium will see a large number of atrocities on many islands. The differences between the several ehtnic and religious groups will escalate and will be very difficult to end. Only decisive and fair actions of the central government with support and mediation from an international country or organisation could stabilise the situation and save Indonesia as some kind of federation, the other option is most likely the disintegration of Indonesia into many, at least four or five, new countries, of which some are very wealthy in resources.

Solomon Islands

The Pacific island paradise has an internal problem and a small external destabilising factor. Both are controllable and does not threaten the existence of the country.

The proximity to Papua New Guinea caused some problems as the conflict between the government of Papua New Guinea and the rebels on the island of Bougainville threatened to spill over to the Solomon islands. The Solomon islands were used by the rebels as logistical base, much to the displeasure of both governments.

The attempt to improve the armement of the Solomon security forces, Solomon islands do not possess an army and rely for their security on the Royal Solomon Island Police Force, caused some internal disturbance in the population and the new elected government. The availability in the country of more and advanced weapon systems, to the understanding of Solomon islands, could worsen the fragile internal political constellation.

There is an internal conflict going on, on the Solomon islands between the inhabitants of the country’s two largest islands. People from Malaita have settled on Guadalcanal. This to the displeasure of a number of people from Guadalcanal who consider them as intruders occupying valuable land of the Guadalcanal original population.

The Guadalcanal resistance has organised themselve in the Guadalcanal Liberation Army, GLA, to fight the immigrants and the government who supports or at least condone the Malaitans. They call themselve the liberators of Guadalcanal.

The GLA has become very active as they have attacked police stations and they are forcing, intimidating, the Malaitan immigrants to leave Guadalcanal and return home. The militants do not eschew the use of violence to reach their goals.

The end of the conflict is dependent on the willingness of the GLA to lay down their arms. A foreign donor is prepared to fund a peacekeeping force from Fiji, Vanuata and possibly Papua New Guinea to keep order on Guadalcanal. The GLA will be difficult to convince to end their fight. They are convinced about the righteousness of their case. The GLA will probably only be willing to lay down their arms if a number of demands are fulfilled. Like lesser immigrants form Malaita and more opportunities for the Guadalcanal inhabitants. In the mean time the GLA will continue their fight against the government and the Malaitans.

Papua New Guinea

Papua New Guinea one of the less developed countries in the region had until last year an internal conflict with the population of the island Bougainville who demanded independence. The people of Bougainville felt being exploited as the government only extracted the resources from the island without giving the island an appropriate disembursement. The only thing Bougainville received was the environmental damage from the exploitation.

The Bougainville People’s Congress, BPC, a seccessionist movement, resisted the policies of the government of Papua New Guinea. The BPC attacked government institutions and officials and made the exploitation of the natural resources very difficult. After a prolonged fight and the failure of the government to defeat the BPC an agreement was reached with the other political factions of Bougainville. The agreement should be supervised by the UN. The BPC resisted the agreement as it included only some administrative arrangements and the BPC demanded independence.

The government and the BPC started thereafter talks to solve the problem. The decision of the government to allow the island more autonomy was welcomed by the BPC as a step in the right direction. The BPC demand however a referendum about the future of Bougainville with independence as an option before they would be prepared to surrender. The government maintains that independence is not an option, economically Papua New Guinea cannot afford to loose the island.

The talks between the government and the BPC stalled on this subject and it will be very difficult to find an acceptable solution. A referendum will be unavoidable and with autonomy and a fair share in the resources the Bougainville population can be persuaded to remain part of Papua New Guinea. As long as the talks continue the armed struggle against the government wil be suspended. It is therefore of the utmost importance for the government to reach some kind of solution. An armed conflict will be very difficult, if not impossible, for the government to win. Papua New Guinea lacks the financial resources and the capabilities to defeat the BPC.

January 2000

January 2000

Portfolio management in the new millennium

The new millennium

A century and millennium are over and a new one has just started. A millennium with many promisses but also with instability, volatility and a continuation of conflicts which are born out of the end of the Cold War. The world has become saver and more prosperous for one part but for the other part the world has become poorer and more dangerous. The old contradictions, capitalism versus communism – developed versus un- or less developed world, are not valid anymore. The new contradiction is developed or developing countries who embraced some form of democracy and a free market / capitalistic system versus the authoritarian less or undeveloped countries who are forced to live under a system of suppression, controlled markets and economy and who are mostly involved in some kind of internal or even external conflict. A new kind of first world versus a second world, but this time not only based on economic performance but also on political system.

Portfolio management for the next millennium and the year 2000 will be about taking advantage of the positive developments in the first world and avoiding the second world and the occasions when the two meet. As these meetings will be rarely opportunities, for example if some leader of a second world country has become or will become a threat to a vital interest of the first world. The only opportunities are if a second world country changes its government system and wants to become a member of the first world. But this change has to be internally induced. The first world can do little to nothing unless the people of a second world country are making the first step. Only then the first world can and will be able to give support.

The world economy

The development of the world economy can be divided in a growing economy in the first world and a small to negative growth in the second world economy. Or better sum of economies.

The first world economies can be divided, firstly, into the developed economies of the western world, Europe, Australia and the U.S.A, and the Asian Pacific economies of Japan, Singapore, South Korea, Taiwan and to a lesser extent Hong Kong. And, secondly, the developing economies of the emerging markets in Eastern Europe, Latin America and Asia, South-East Asia. The economic growth will be in a moderate to positive scenario in the developed world in the 2,5 to 5 % range and in the developing countries in the 5 to 8 % range.

The second world economies are the un- and less developed countries which can be found on nearly the whole African continent, in the Middle East, on the Indian subcontinent, some parts of South-East Asia and on the territory of the former Soviet Union. The economic growth will be very low to non-existent as the political system and internal and/or external problems are using all available resources. The resources are with other words used for the enrichment of a small group of the population, to stay in power and to continue the conflict in which they are involved. Thereby destroying every possibility of growth.

The first world economies

The first world economies will continue to perform very well. The financial situation of these countries are getting better, the revenues and expenditures are more in line, the debts are becoming lesser and inflation remains stable or at least controllable. And more importantly the life line of every country the business community is doing well and will most likely to continue doing well.

A large number of the medium to large companies, especially export industrial-, tech-, telecommunication-, and the financial sector, have shown a very good performance, a stable growth around the two digit figure over the previous 5 years, and have promising forecasts for the coming years. All indicators and forecasts about the production, demand and counsumer confidence are rising while the cost of money remains stable.

A negative development is that in some countries, especially Europe and Japan, the small companies are staying behind and are a little bit weaker as the larger companies. And there are some sectors which have not participated in the boom on the stock markets. Their growth have been moderate but their was no large interest in the companies.

A number of small companies have some difficulties in reducing the costs and global competition does not make live easier. But if the current trend continues their sales and profits will experience an improvement.

The laggards of the stock market in the U.S.A. will not be able to create a break trhough in the coming year. Their sector in general and the forecasts in particular have been negative and this will remain to be the case as the income expectations and forecasts do not promiss any large improvements. Certainly not in comparison to the tech stocks.

The rising interest rates in Europe and the U.S.A. have had a dampening effect on the markets as investments in the stock market became less profitable. The rates did not destroy the economic growth. In Europe the demand and market confidence was not influenced to much by the higher cost of money. In the U.S.A. the small interest rates hikes were helpfull in slowing down of the economy. But the somewhat lower demand and the increase in productivity have been mainly responsible that the inflation has been kept in check. The low inflation has been further supported by the unexpected low warehouse figures of several industries and the lesser mergers and acquisitions activities. All these factors have created the pre-conditions for a soft landing of the hot U.S. economy.

The rates in Europe and the U.S.A. will remain in 2000 at about the same level as at the end of 1999, in the 3+ % and 5,5 % range. This will be enough to control inflation and give the economy a chance to continue to grow.

The much talked about millennium bug will have none to little impact on the economies of the first world countries, especially not in western Europe and the U.S.A. The majority of the systems at the government and large and medium businesses have been checked and repaired. A number of the smaller companies are not yet been checked and repaired but the consequences of a failure are much less dangerous as with the larger companies. And remember that the dates of 1-1-1999 and 9-9-1999, which also could pose a software problem, went by without any mentionable problems.

The first world economies are not endangered at the turn of the year. Economic growth will not decrease it will most likely increase. The U.S.A. will continue to grow only at a more comfortable speed. Europe will benefit from improving economies of nearly all countries in Europe. The next decade promisses to be the European decade with the European Union becoming larger and stronger, more unified regulations, the introduction of the Euro as a currency, more and intensified business relations and growing economies. Japan has been able to make the turn around. Consumer demand seems to be rising, companies are restructuring and finally the first actions are being undertaken to solve the bad loan problem. After years of shrinking, the economy is moving upwards, there have been growth in the first half year of 1999. The forecasts promisses some growth for the year 2000. The emerging markets have been active in solving the problems which had caused problems in their countries. The improvement of the Japanese economy meant automatically an improvement of the economies of the emerging markets. This improvement will continue in 2000 and can only be stopped, or better limited, by a medium to major conflict in the region.

The improving economies in the first world will lead to a rather high chance of large volatility in the year 2000. There have to be made changes into the portfolios of investors which will lead to some larger sell offs. The resulting profit taking and the fear, disbelieve, of the continuing bull market will create further volatility. And finally the interest rate hikes in the U.S.A. and Europe to combat the threat of inflation will also create volatility.

At the end of the year 2000 the stock markets of the first world countries will deliver an average growth between 8 % and 15 %. But with some large up and down movements.

The United States of America

The U.S.A. will experience a soft landing of its economy. Growth will be around the 3 % instead of the 4+ % of 1997 and 1998 and approximately 3,75 % for 1999. The business growth will also be somewhat lower, instead of double digit figures of the U.S. business community responsible for the stock market growth, they will only grow at about 8 to 9 % in 2000. The high stock valuations of those highly succesfull stocks, the price earnings ratio, will remain high, so do the interest rates and this will therefore lessen the attractivity of the U.S. stock market. The U.S. stock market will show a slower growth then in previous years. It will not be bad or disappointing but the returns elswhere will be larger.

Europe

The European economies are growing, the large companies are restructured and able to compete on the world market and the low value of the Euro will promote exports. The weaker smaller companies still face some difficulties about improving their profitability but with a growing market these problems can be dealt with. The unemployment remains at unacceptable high levels but the increased consumer demand and the increasing number of service companies might bring some relief.

The most important factor is however that consumer confidence has been improved after years of lagging demand. And this will deliver the largest improvements to the European economy.

European stocks are because of the improving economy much more interesting than U.S. stocks. The stock valuations, P/E ratio, are also much lower and therefore more promising on the short to medium term.

Australia

Australia, New Zealand included at some distance, are benefitting the most from the recent improvements in the economies of the Asia-Pacific rim countries. The Asian area has been traditionally an important market for products out of Australia. As the Asian market collapsed during the crisis Australia managed to enter new and enlarge existing markets in Europe and the U.S.A. Consequently the Australian and New Zealand economies have not been that dramatically hit by the Asian crisis and its economic fall out.

The return of the traditional markets has had a positive effect on the Australian and New Zealand economies. The business communities in both countries have gained a lot in strength. The results have been very promising and will continue to be promising in 2000.

Australian stocks are not cheap but it remains worthwhile to increase the investments in Australia and New Zealand. Especially Australia will expernience one of the best years in its history.

The Asian-Pacific rim countries

The economies of the developed Asian-Pacific rim countries like Japan, South Korea, Taiwan, Singapore and Hong Kong have experienced a large improvement in 1999. The existing problems like the very high debt ratio of many businesses, the inter-business relationships and the government involvement is in the process of being corrected. The improved internal but especially external demand has been very benificial for the economies of the above mentioned countries.

The economic growth will continue in the year 2000 and will most likely with the exception of Japan reach the 4 to 6 % level. Japan as the most developed country in the region will in the most positive scenario achieve a growth of around 1 to 2 %. But this a large improvement to the previous years of a shrinking economy. Japan is a case of its own, there are still some worrying problems. The large and industrial companies are doing very well. The smaller and non-industrial companies are still weak and do not expect an increase in sales and profitability. The consumer demand has improved but is still very weak. Japan will see growth in 2000 but it is not yet very stable.

The stocks in those countries are therefore very attractive as the majority of the companies in those countries will deliver above expected results in the next two to three years. The stock valuations are also very positive. The stock markets of the Asian Pacific rim group of countries are therefore very promising on the short to medium term.

The emerging markets

The emerging countries in the first world group of countries are also very promising. Countries who belong to this group are Thailand, Malaysia, the Philipinnes, Poland, the Baltic states, Hungary, Czech republic, Slowakia, Slovenia, Turkey, Mexico, Chile, Brazil and Argentina.

The South-East Asian countries made the first efforts and even partly implemented the necessary changes to create a healthy economy. The following cases are going to be or are introduced; financial regulations, control mechanisms and business changes to increase profitability.

The first signs of growth in South East Asia became visible in the first half year of 1999. The second half was somewhat lower but in general the trend is upwards.

This same is valid for the Latin American economies. The governments of those countries were better off as they did not need to make that dramatic incissions in the company structure of the country. But the pressure on the currencies and the decreasing exports pushed the economic performance downwards. After measurements of the government and support of the IMF the currencies could be stabilised and the subsequent Asian-Pacific re-emergence improved the situation in Latin America. On the negative side, Brazil is having some problems with the transfer of companies from state owned to private owned. This is damaging the confidence in the Brazilian market. And Argentine is struggling with its currency which is closely connected with the US dollar. Argentinian products are therefore relatively expensive.

The Eastern European countries were depressed by the Russian economic and financial crisis. A number of Eastern European countries are still dependent on Russia as it is the largest buyer of products out of Eastern Europe. The simultaneous privatisation programme, the change to a market economy, has not been that easy as expected. The change initially has created a relatively large economic growth in the years just after the dissolution of the Warsaw pact and as the output of Soviet production system became very low.

The continuation of the privatisation programme at a slower pace, prudent government policy, support from the European Union, the improved economies in western Europe and the growing attractivity and strength of Eastern Europe for investments and an improved internal and external market have changed the position of Eastern Europe. Eastern European economies have experienced a larger growth in 1999 and the growth will continue in 2000.

There are some worries about the Y2K, millennium, problem in Eastern Europe, and in nearly all other countries except the U.S.A. and western Europe, as the majority of the companies have done little to nothing to fix the problem. The consequences of a Y2K problem in Eastern Europe will be much less dangerous as in western Europe or the U.S.A. The computer penetration level is in Eastern Europe much lower as in the west and much less advanced, e.g. very often they even do not have a time/date option installed and very often are the computer systems of a new/young generation of which might be expected that they are millennium save. The penetration level of computers is in all countries except in western Europe and the U.S.A. relatively low and the impact of an failure will be much lower. And the largest number of the computers are thereby new, five to six year old, so with some luck already 2000 proof.

Eastern Europe will experience growth in 2000, especially the countries selected to enter the European Union will do very well. The connections with western Europe will become ever stronger. Eastern Europe is at the moment more dependent on western Europe for its economic well being than from Russia. And western Europe will be very promising in the coming decade, so Eastern Europe will benefit from it.

Finally a word to Rumania and Bulgaria. These two countries are the worsest performers of the group of former Warsaw pact countries. Their economy is weak and there are many unemployed. It will take time and work to change this situation. The Kosovo problem could have a positive effect on these two countries as their support during the conflict has led to additional promisses from the European Union to support Rumania and Bulgaria to improve their economy. On the medium term these two countries might offer some better potential and investment opportunities.

Countries in between

A number of countries do not belong to the second world group of countries. They are not that easy to group and belong to their own group. The countries in between are mostly democratric or semi-democratic countries which have a weak economy and very often some kind of internal problem.

Countries like Egypt, South Africa, Venezuela, Ecuador, Peru, some middle American countries, Russia, Ukraine, India and maybe Vietnam belong to this group.

The economic prospects of these countries are weak and will remain so on the medium to long term. They will first have to solve the internal weaknesses before economic growth can set in. In the mean time those countries will not be a viable investment opportunity. An investment in those countries is associated with a very high risk. For example an investment in a Russian oil company could be very profitable but the uncertain legal and ownership situation, the very often unclear alliances and the conflict in Chechnya could change the fortunes of these companies overnight.

The special case is China it does not belong to this group or the second world economies group but because of its size, power and theoretical potential it is essentially a group of its own. China is a large country with many opportunities but it is having and will have in the future considerable problems with the development of the country. The government system fuells nepotism, the creation of little empires in the country and will promote corruption. The unclear legal system and accounting and business practices will make it unreliable. The division and contradictions between good and bad companies, coastal and inner provincial regions, between rich and poor will increase and will be responsible for internal tensions. The social dissatisfaction and non-existence of a workable economical system will create many problems. Not to mention the ethnic/secession problems in the western China. All this taken together can only be controlled or hold together with the massive use of security forces. And in an environment of suppression self created and sustained economic growth has no chance.

China will be able to mask its problems for some time by its seducing (false) opportunities, its large financial reserves, the inflow of foreign investment and the number of companies which are performing very well but in the end somebody has to take up the tab. The large number and the scale of the problems can not be solved by economic growth. China would need two to three decades of at least 8 to 9 % of economic growth each year and the inflow of very large sums of foreign investments, to solve only its economical problems, e.g changing the country from an agri-cultural society with a large number of government owned inefficient loss making enterprises into an industrial-service society with profitable companies. And this is something of an impossibility. In short, structural problems like these demand structural solutions.

The second world economies

The second world economies are the group of countries which have a very bad economic performance, little potential on the short term, an autocratic government and are often involved in some kind of internal or external conflict. You should think about countries like Iraq, Iran, Syria, Algeria, Sudan, Liberia, Sierra Leone, Uganda, Rwanda, Burundi, Congo, both, Angola, Somalia, Ethiopia, Eritrea, Georgia, Armenia, Azerbaidjan, Tajikistan, Kyrgyzstan, Afghanistan, Pakistan, Sri Lanka, Burma, Cambodia, Laos, North Korea and Indonesia.

The government structure, the internal problems, sometimes tensions or even external conflicts, the undeveloped economy, high unemployment and the disuse/abuse of the resources make any progress and economic growth very unlikely on the short, medium and long term. In the long term there is change possible but only if there is a change of government, e.g. government structure. Not only the replacement of people but of the system as well. Until that time it is even unnecessary to consider investing in those countries.

Portfolio distribution

To have a succesful portfolio it will be necessary to spread the risks and optimise the returns. There are essentially four groups of investments to include in your portfolio. Stocks, bonds, property and cash in one or more currencies or short term depositos. Each category has its own risk and return ratio. Stocks have the highest risk but also the highest return. Bonds, commercial and government, have, depending on the grade, a much lower risk but also a lower return. Property also has a smaller risk factor and mostly a lower return. Cash has the lowest risk, if it is a stable currency, but ofcourse also will deliver the lowest return on your investment.

There are other investment oportunities like derivatives or commodities. Derivatives are options and futures or combinations of both. The number of possible derivatives is unlimited as every day, every hour new instruments are created by the financial institutions of the world. Derivatives gives you the right or obligation to buy or sell an underlying stock, currency or whatever at a negotiated date in the future. Derivatives are developed to hedge your investments against losses or will guarantee the possession of a given product. But you can also use the derivatives to speculate as the value of derivatives will change just like the underlying product. It can give you the opportunity to buy or sell products at a tenth of the actual price of a product without possesing the product so benefitting from the positive or negative developments of a product. But always remember you can loose everything if the development you anticipated goes in the other direction and nobody has an interest in your derivative or the underlying product.

So we only advise to buy or sell derivatives if you need to have a given stock, currency or other product in some time, if you want to protect, hedge, your investments against an expected unwanted development of the market or if you need the value of your investment at a time in the future.

Commodities are products like silver, gold, orange juice, pork bellies, other agri-cultural products and so on. Your are essentially buying or selling these products or the derivatives of these products on the expected availability of them in the future. This will make them very volatile and speculative.

The portfolio for 2000

A balanced portfolio should consist out of stocks, bonds, property and/or cash. The quantity of each part should be based on the time horizon, e.g. the number of years willing to invest, and the willingness to accept risk. And ofcourse the goal of the investments, which is mostly connected with the time horizon. It might be savings, pension, a house, some other much wanted very expensive item, the college education of the children, income now or later. The portfolio can and will change during its existence as the motive, time horizon an risk acceptance changes during time.

There is a scheme which gives an summary of the combination of time horizon, composition of the portfolio and the to expected return on your investment. The to expected returns only gives an indication based on historical data and does not guarantee the performance in the future.

If you are willing to invest for a period of at least 1 year, the portfolio should consist out of 50 % bonds and 50 % cash, the return would be in the range of 4 to 5 %.

If you are willing to invest for a period of at least 3 years, the portfolio should consist out of 20 % stocks, 5 % property, 45 % bonds and 30 % cash, the return would be in the range of 5,5 to 6,5 %.

If you are willing to invest for a period of at least 6 years, the portfolio should consist out of 30 % stocks, 10 % property, 50 % bonds and 10 % cash, the return would be in the range of 6,5 to 7 %.

If you are willing to invest for a period of at least 10 years, the portfolio should consist out of 60 % stocks, 15 % property, 20 % bonds and 5 % cash, the return would be in the range of 7,5 to 8,5 %.

If you are willing to invest for a period of at least 15 years, the portfolio should consist out of 75 % stocks, 10 % property and 15 % bonds, the return would be in the range of 9 to 10 %.

If you are willing to invest for a period of at least 25 years, the portfolio should consist out of 90 % stocks, 5 % property and 5% bonds, the return would be in the range of 10 to 11 %. With this time horizon you might increase the quantity of stocks to 100 % and receive a return of 11 to 11,5 %. A 100 % stock portfolio carries some disadvantages. For example if the market is temporarily down and you would need some cash there is no other option then to sell stocks below value or ofcourse lend it from a bank. But that is mostly expensive in a time of a tight money market and a depressed stock market. In those times bonds and property mostly keep their value.

These five portfolio models deliver an idea how to allocate your assets. Which pattern should be selected belongs to your individual wishes and demands. After establishing the right portfolio allocation the next question is the allocation of the individual part.

Cash is best placed in for example short term gilts or depositos in a stable currency. Going into exotic currencies can be more profitable but is more risky and mostly expensive. Especially if you want to remain into currency investing for a longer term.

Bonds can be divided into government and commercial bonds and the interest rate depends on the trustworthiness of the company or goverment issuing the bond. The trustworthiness is determined by the credit rating the issuing company or government received. If the rating is high, triple A or AA, the bond is reliable and probably has an average interest rate. If it is however B then there is considerable risk of default and consequently the interest rate is higher. We advise bonds with a high credit rating as they are best tradeable and keep the highest value in time. If you want risk go into stocks there is more to gain.

Property are the stocks into property funds. Property funds are essentially companies who plan, built, buy, manage, rent out and sell property. Property is a reliable stock as it is based on the buildings. The property stocks are not fast growing stocks, except in times of high demand, but they are very stable and reliable in their returns.

At the moment the property stocks in Europe and the U.S.A. have delivered a very nice return on the investments. Their price, especially in Europe, is still relatively low. Because Europe is at the beginning of an economic growth cycle European property stocks are very promising. The Asian-Pacific property stocks are more dangerous as the economy is still recovering from the crisis and there is an oversupply of commercial buildings. It is therefore still to early to enter the Asian-Pacific property market. Except if you have the necessary stamina and an appetite for risk and living dangerously.

Stocks, part ownership of companies, are the investment opportunities, outside derivatives and commodities, with the highest possible return on investment but they inhibit a certain risk. The volatility of stocks is famous, the value of stocks can be halved within a day if bad news reaches the market. Stocks have been however on the long term the most profitable and savest way of investment. If you take a time horizon of over 15+ years all business cycles are included and balanced out. If the company is a good company after 15+ years it should have grown and become more valuable. If it would deliver a bad performance over time the company would have been closed or taken over. But long before you would have sold your stocks in that particular company and invested it in another company.

The growth and returns of stocks is very differentiated. Some sectors perform very well, even if a number of companies have none to little returns and profits. Where as other sectors have delivered over years a stable growth of two to three percent but the stock remained at the same level or even decreased in value.

The following sectors promise the best growth on short to medium term. In general the large cap global players like General Electric, Citigroup, Dell, CSC, Ford, Procter and Gamble and Coca Cola. To mention a number of companies which offer the right potential. Companies with the size and abilities the play on several markets, with several products and which are lean and mean but still with enough human and financial resources.

In particular the export industrial companies, the tech industry in its various forms and sizes, telecommunications, the regional, commercial and integrated financials, oil and oil service industry, entertainment and hotels and resorts, luxury retail and large retail groups with a good sales and control system and if you have some patience the drug sector, and then the companies with a large product pipeline and the necessary scale to assure continuation.

Stock Allocation

Stock allocation, stock picking, is one of the most difficult parts of the investment business. To be succesful you have to select growth stocks. Quality stocks have to be selected which promiss to outperform the market. Those stocks belong to companies who have little to no weaknesses. Management, production, R+D, sales, marketing, the product and product pipeline and the forecasts have to be good.

First select the right and most promising sector and in that select the most promising companies. Through the globalisation, nearly the whole earth is your working area. After a balanced portfolio has been built of quality companies be sure to take a long term policy of little movement, changes, in the structure of the portfolio.

The U.S. stock market will be somewhat depressed because of the lower growth, high P/E valuation and negative advance-decline line. A correction of up to 20 % will not be unlikely in the second or third quarter of 2000. It will take some time to make good the correction. Instead of the usual 2 to 3 months it could now take up a year to reach the old high stock market levels.

The European, Asian and Latin American markets will do better as their home markets, export opportunities and business figures improve. The medium and small size companies also have their problems but the improving economy and demand, the steady shrinking number of unemployed and the continued changes in the effectivety of the companies will create a more broad based economic growth. The European, Asian and to a lesser extent Latin American markets will outperform the U.S. stock market.

As we have seen above the economies of the first world are improving. Nearly all countries in the first world experience growing economies. The companies in those countries are performing well to very well. This could have an effect on the share price. It will go up for the big cap companies which are operating all over the world and profiting from the global growth. This is valid for the big caps in the U.S.A., Europe and the Asian-Pacific region. A number of U.S. big cap with a high P/E valuation will however experience a slower growth in comparison to its European and Asian counterparts.

The medium to small companies in the U.S.A. will have a harder time. They will face a slower growing U.S. economy, an expensive dollar, somewhat lower demand and some price pressures. This will lead to a lower growth figure, disappointing many analysts. Consequently, the advance-decline line remains negative. Only a small group of companies will be able to move forward with the majority staying behind. The number of laggards in the market will become larger. 1999 did not deliver the much needed broad based growth of the market. At first it looked promising as the paper and other cyclical stocks started moving up but it could not hold on to the growth.

In Europe, Asia and Latin America the medium and small companies have some better prospects. The growing economies and the increased demand will provide them with better opportunities and results and weaknesses can be covered by the growth. The stock prices of those companies listed on the stock exchanges will however only show none to little growth. The results are not that convincing to fool the analysts.

Only the sectors mentioned, listed, in the previous chapter will be able to beat the market in 2000 as it did in 1999. To be on the winning side of stock investing take care to be in those sectors and preferably in the large caps.

To minimize the risk and optimise the returns you have to spread your stocks over several countries and even more companies. For the year 2000 we favor a stock allocation of: 8% Germany, 3 % the Netherlands, 1 % Belgium, 7 % France, 5 % Spain, 1 % Portugal, 3 % Switzerland, 1 % Austria, 6 % Italy, 1 % Denmark, 1 % Norway, 1,5 % Sweden, 0,5 % Finland, 5 % United Kingdom, 1 % Ireland, 0,5 % the Baltic countries, 2,5 % Poland, 1,5 % Czech republic, 1,5 % Hungary, 0,5 % Slovakia, 0,5 % Slovenia, 18 % the U.S.A, 3 % Canada, 2,5 % Australia, 5 % Japan, 1,5 % Hong Kong, 3 % Taiwan, 3 % South Korea, 2 % Singapore, 1,5 % Thailand, 1,5 % Malaysia, 1 % the Philipinnes, 2 % Mexico, 2 % Chile, 0,5 % Argentina and 1,5 % Brazil.

An allocation of this size is only possible with larger funds to invest. With smaller investments you could instead invest in socalled region funds. With 45 % in a West European fund, 7 % in an East European fund, 21 % in North American fund, 21 % in an Asian-Pacific fund and 6 % in a Latin American fund.

December 1999

December 1999

Conflicts in the world

December 1999, Part I;

– Introduction

– The Americas

– Europe, Russia and the new states

– The Middle East

February 2000, Part II;

– Africa

– The Indian subcontinent

– Asia, the Pacific-rim

Conflicts in the world, Part I

– Introduction

– The Americas

– Europe, Russia and the new states

– The Middle East

Introduction

We intent to deliver an overview of all actual conflicts and the ones which might come into existence on the short term, e.g. in the coming 6 to 12 months, in the world.

The Americas

The North and South American continents have been relatively peacefull places, with a couple of exceptions. There are three countries which have some kind of internal problem, from low intensity to civil war level, and two countries who are at odds which eachother about the demarcations of their mutual border.

Venezuela vs. Guyana

Venezuela and Guyana have still a different interpretation of the demarcation of the border. This difference intensified as Venezuela deployed a number of troops to the region, allegedly to stop drugs smugglers, the Guyana government became excited as they did not trust the situation.

This long standing disagreement has never been that serious that an armed conflict would be just around the corner. Both countries are thereby unable to launch, continue and support such and operation. Militarily and especially economically they have to many problems to start an enterprise like a small scale war with a neighbour.

The border disagreement arises if one of the countries unexpectedly deploys forces to the region. But this does not happen that often. The conflict has been therefore very low level and seems to stay that way on the short to medium term. The conflict seems to diminish and disappear because the United Nations have send an intermediary to the region which has a fair chance to solve it.

Mexico

The problems in Mexico are of a different nature. The economic and social differences have been always very wide and they seem to increase in the southern part of the country. In this rural area farming has been the main source of income. As most of the land is owned by large landowners many of the people living over there have been forced to work for them or lease the land from that group. The large landowners have become more wealthy and the working people have become poorer.

The poverty of these people, and to a lesser extent the working class in the north, have been the reason of the existence of some groups which want to improve the situation of these people. If necessary with violence. The EPR, Ejercito Revolucionarias Popular, and the CND are national operating organisations who demand a change in he political system. The majority of their work is more or less normal political work but at times they use other means, like violence, to intimidate and persuade people of the rightousness of their claims.

The EPR and CND have been relatively calm in the past six months and paid more attention to political work. The elections which are to held in 2000 are the main reason for this. They do not want to give the ruling PRI party an excuse to tighten security, increase police activities, suppress the opposition or even cancel the elections which they are prone to loose.

The other main oppostion party outside the normal political infrastructure is the Zapatista Liberation Army. The Zapatistas are an indian based party concentrated at the province of Chiapas. They want to change the unfair distribution of property. The Zapatistas have been using military/guerilla tactics to enforce their policy. In the last one to two years the Zapatistas have been largely subdued and are now vitually prisoners in their own province.

All opposition movements in Mexico want to improve the situation of the poor, landless farmers and the Indians. Beside a political structure they are also using violence to force the Mexican government to change its policy. Because of the coming elections an artificial peace like environment has been created. The normal political parties and the opposition movements, EPR, CND and the Zapatistas, are anxiously awaiting the results and therefore called some kind of cease fire in the guerilla war they are waging.

The new government might be more willing to listen, cooperate and to change something about the bad socio-economic situation of the poor, landless farmers and Indians. If the wishes and demands of the opposition are not met, not even partially, the situation in Mexico will turn very nasty. Violence will increase as the political process proved to be unworkable / unsupportive for the worse off in the Mexican society. A desperate fight will be the consequence as the opposition will have nothing left to loose, in short civil war.

Colombia

The situation in Colombia is as worse as before. The country is essentially involved in a full scale civil war. The government has not been able nor will be able to control or stop the activities of the leftist guerillas of the FARC, Fuerzas Armadas Revolucionaries de Colombia, the ELN, the National Liberation Army, and the right wing para-militaries. Beside the violent political opposition, there are still a number of criminal organisations which financially support the above mentioned organisations in exchange for protection and occasional support services, read forced labor and transport services.

The leftist guerilla organisations of the FARC and ELN, control over 42.000 KM2 of the territory of Colombia. The right wing militias also control considerable parts of the country but this in cooperation with the large land owners who more or less support the militias. The right wing militias were in the first place created to protect the land owners, or associations of land owners, from attacks of the leftist guerillas.

The Colombian armed forces could until now, 1999, not defeat the guerilla forces. They are forced to protect to many vital installations and important people. So only a fraction of the forces are available to fight the guerilla. And the quality of the guerilla has been very good. The training of the guerilla, especially the FARC, has been better than that of the regular soldier of the army.

The promised U.S. financial and material support to combat the narco organisations would be helpfull as this would them a better chance to defeat the narco trade. Consequently the financial resources of the leftist guerillas and the right wing para militaries would be reduced. But the U.S. support will prove to be to little and to slow to make an impact on the short to medium term.

In the mean time the only option of the government is to talk, negotiate, with the leftist guerillas. They are however very adverse to negotiations as their positions are much better, stronger, then the government’s position. All attempts to talk have failed because of increasing and new demands of the leftist guerillas.

The government is in a difficult position as they are not able to defeat the armed opposition and the start of negotiations will become ever more difficult. The leftist guerillas consider the negotiations as a way to gain more territory or liberties and they see it as a weakness of the government. They see themselve on the winning side, so why give in something you will be able to take in the short to medium term. All pleas of the population will not change the policy of the leftist guerillas so close to their goal.

The conflict is likely to intensify in the future. The government received additional support from abroad, they are getting tired of the negotiations which lead to nothing and are increasingly trying to fight the guerilla and the narco-gangs which support the guerilla. The FARC and ELN have increased their operations against the government and the FARC has approached the outskirts of the capital Bogota in the traditional hit and run tactics. The guerilla will be in the short term more hurted by the apprehension of the narco financial supporters than by the operations of the armed forces against them.

The civil war will most likely continue in 2000. Colombia will remain a country is distress. The fighting will continue as no side is able to defeat the other side.

Peru

The situation in Peru has improved as the capabilties of the MRTA, Movimento Revolucionario Tupac Amaru, and especially the Sendero Luminoso, Shining Path, have been severely limited by the actions of the government. The MRTA has been virtually destroyed since the last spectacular action, the kidnapping, in the Japanese embassy. The MRTA as a city guerilla, never had that much support in the population and remained small in scale and effectivety. The government could thus relatively easy control and destroy the most active elements of the MRTA.

The Shining Path has also become the phantom of its former strength after nearly the whole leadership have been arrested and put in jail. The Shining Path still exists as a guerilla force but they are at the moment not able to control parts of the country and to strike at the armed forces as before.

The government and the security forces will continue with the crack down of the Shining Path and the MRTA. The Shining Path will therefore not be able to become as dangerous as before. The only option left wil be some occasional attacks against the armed forces, deep inside the jungle of the country. Peru will be safer as before and this trend is most likely to continue.

Europe, Russia and the new states

In this chapter we will evaluate the situation in Europe, from the Atlantic ocean to the Ural mountain range, and because of the close relations with Russia we will include the new Asian states, which formerly were part of the now defunct Soviet Union.

The situation in Europe, with two exceptions, can be divided into two parts. The quiet Northern-, Western- and Eastern Europe and the volatile South-eastern Europe. Where as the first group is free of any outside direct threats and internal violent oppostion with the exception of the United Kingdom and Spain. The second group, South-eastern Europe, is much more under threat from inter- and intra state conflict. The Balkan remains the most volatile area, with Turkey on a second place and Greece closing the line.

The territory of the former Soviet Union, excluding the Baltic states, Belorussia, the Ukraine and Moldova, is a much more complicated affair. A number of countries have inter- and intra state differences, some intra state problems and with the exception of one or two the left over is being hit by spill overs from their neighbours problems.

Europe

As mentioned above Northern-, Western- and Eastern Europe is virtually free from any conflicts with the exception of the United Kingdom, Spain and to be complete France. South-eastern Europe is the area with the problems which destabilises the area and could affect the other part of Europe by the refugees if a problem becomes hot.

The United Kingdom

The problem which could become violent again is the Northern Ireland case. Northern Ireland remains a potential hot spot as long as the two groups, the Catholic republican minded group and the Protestant UK/monarchy minded group, do not reach an agreement.

After years of violence, bombings, terror and suppression of the Irish Republican Army and associated groups, the Ulster Defence Force and associated groups and the Britsh forces, the Ulster Constabulary and the Britsh Army who acted very often one-sided, all parties agreed something had to change.

The IRA represented by the Sinn Fein, the Ulster Unionist Party, with approval of the UDF, and the British government started negotiations to end the conflict. After an initial success, elections and the cessation of violence the peace process stalled over the disarmament demand of the UDF and the British government. If the peace process stalls to long dissatisfaction and reciprocal accusations and assaults will become more likely.

The parties involved in the peace process need progress as the hawks on each side, who never really agreed with the peace process, are pressing to return to the armed fight. They still believe they can win the conflict by the use of force, violence.

It therefore of the utmost importance that the negotiations will start again. There are signs that all concerning parties are prepared to compromise. Sinn Fein ministers will be allowed to join the government, an IRA member will join the disarmament commission, the disarmament will be postphoned to the beginning of 2000 and the Ulster Unionist Party accept that if disarmament fails the Sinn Fein ministers will have to leave the government.

It should however be considered that the demand of disarmament is shortsighted. A disarmament will only deliver an artificial feeling of security. Because if they disarm there can never be a certainty that all weapons are handed over. There are private illegal weapons and ofcourse the weapons of the Protestant militant groups. They can rearm very quickly. The hand over of weapons to the British armed forced is experienced as a surrender but there are no victors nor defeated. And the armament delivers the Catholic side an idea of equality versus the Protestants and the all mighty British security forces.

The disarmament question should be dealt with after the peace threaty have been fully implemented and the people can and will live and work together as normal people. A first step that the explosives will be handed over to the government, British army, should be enough as a confidence building measure.

A return to the armed conflict will be unlikely on the short term as both sides profit most from peace and the leaders are to carefull to destroy the progress that have been reached. But to avoid violence on the medium to long term the process/negotiations/cooperation have to start again. Otherwise things may look bleak.

Spain

The demand of the Bask people, or better the ETA, Euzkadi Ta Askatasuna, for independence remains as firm as before. The promising first contacts, the start to peacefull cooperation and the disgust of the Bask people of a number of attacks of the ETA have been turned around. The election in Bask country of a coalition of pro-Bask independence/autonomy parties and a resurgent Herri Batasuna, the political arm of ETA, politically, and ETA, militarily, are a clear sign that the armed struggle will continue.

The Spanish government might have been to slow and carefull in the policies regarding the Bask province but they could most probably not avoid the resurrection of the ETA. The hard liners have been backed by a new generation of ETA supporters and are vividly and loudly proclaiming their goal, independence. The political activities have been supported by the creation of new arms depots and a new infra-structure in Spain and in France.

The ETA seems to be prepared again to use violence to support their fight against the Spanish government. Independence of the Bask province and even the creation of great Bask country seems to be the goal of the ETA. A restart of the armed conflict seems to be very likely as no side is prepared and able to compromise. All progress made in the last two years will be thrown away as the ETA cannot give up the independence demand and Spain cannot go any further than the already autonom status of the Bask province.

France

The problem of France seems to be small against the problems in Spain and the United Kingdom. The province of Corsica is still a trouble spot in France. There are three or four parties / organisations who demand independence or better something like it.

The parties are not very active and occasionally burn houses of people who are not native Corsicans or use it a holiday house. Sometimes, even rarer, they attack government property or people representing the French government. Their normal work is to collect taxes from Corsicans under the guise of paying for the independence fight and / or they collect money from the French government as a kind of pacifying gesture of the government. Corsica is the most subsidized province of France.

And this is the problem of Corsica, they want to be independent but they do not want to loose their preferential treatment. Corsica and especially the parties voting for independence are addicted to the financial support. The reason of existence sometimes seems to be financial motivated.

This struggle seems to be continueing in the coming years as long as France does not radically change its policy towards Corsica. Changing the subsidy regime towards the Corsicans will increase the attacks against government institutions. And if granting independence would be considered Corsica will most probably reject it, as economically Corsica is hardly able to do it on their own.

South-eastern Europe

The real problems of Europe are centred at an area which have been historically very difficult and violent. There are different religions and people in this area which each have at one one time ruled over the other. There are differences about the exact demarcation of the border, revanchism and a leader who considers conflict and/or war as an opportunity to stay in power. The area in question is the Balkan. And in particular the area of the former republic of Yugoslavia.

The other region with above normal tensions is the long lasting Greek-Turkish contradiction and the connected Cyprus question.

The Balkan

The Balkan has been for centuries the centre of conflict. In one of the last major conflicts it has been on the frontier between two opposing religions and world powers, the Austro-Hungarian empire versus the Ottoman empire. Or as it is sometimes called in Germany, Morgenland gegen Abendland.

The republic of Yugoslavia became the victim of the end of the Cold War. The differences between the peoples in Yugoslavia, the division of power and the inequality of economic development and wealth in the country, made the country fall apart. Slovenia, Croatia, Bosnia-Herzegovina and in 1999 Kosovo left the republic. With the exception of Slovenia all had to fight for their independence as large groups of Serbians in each of those areas resisted to, with support of the Yugoslav army, the dissolution of the country. Only after years of battle, mutual atrocities, dislocation/movement of ethnic groups and after long hesitation the decisive intervention of NATO forces some stability could be introduced.

As long as NATO remains on station in the area, in Bosnia and Kosovo, there will be no fighting between the different ethnic groups. Bosnia will remain however a divided country as each group has its own little territory. The situation is Bosnia has stabilised in sofar that a new conflict seems to be very unlikely on the short to medium term.

Kosovo will also finally experience a more stable environment. The NATO contingent will not allow any fighting. And Kosovo will be dominantly Kosovo-Albanian as the Serb minority fled the area, after the conflict, in fear of revenge of the Albanians.

The bad genius of the area is still in power. The president of little Yugoslavia, or better Serbia, Slobodan Milosevic, have used and will use the ethnic differences in the country to stay in power. With little attention to the demands of other ethnic groups who live and have lived in Yugoslavia he protected his position and the dominant position of the Serbians in former Yugoslavia. As soon as some one was undermining those positions he played the nationalistic Serbian card to suppress all opposition. There are now two areas left in little Yugoslavia, the northern Serbian province Vojvidina and the associated state in little Yugoslavia Montenegro, in which there are respectively a large group of Hungarians and a majority of Montenegrans

It seems to be very likely that Milosevic has a two track strategy for Montengro. He will on one side use the aversion of Montenegro towards his regime and on the other side he will want to destroy the opposition in Montenegro with the common goal to reinforce his position. E.g. Serbia and Milosevic cannot loose Montenegro as it is the only connection to the sea and the Serbians will most probably rally behind Milosevic if it seems as Montenegro will secede from little Yugoslavia.

It is therefore very likely that Serbia will act in the months of March, April or May of 2000 to bring back Montenegro under the direct control of Serbia. The number of Yugoslav army, VJ, troops in Montenegro have been increased after the defeat in Kosovo. Milosevic would like to bring in the politically more reliable and better armed and trained para military security forces of the MUP into Montenegro but this is forbidden by the constitution of Montenegro. So the VJ forces should in the mean time intimidate the president of Montenegro Milo Djunkanovic to accept full federal authority. If this fails or if Montenegro secedes it will give Milosevic an excuse to send in the MUP forces.

A to independent Montenegro is geo-strategic and political intolerable for Serbia and Milosevic.

Greece vs. Turkey

Since the creation of modern Turkey by Ataturk there have been difficulties about the exact demarcation of the sea border, especially in the Aegean sea, between Greece and Turkey. The relations are further undermined by the acquisitions of advanced armament by both countries, the policy on Cyprus and the suspicion of Turkey that Greece is supporting the PKK. These tensions are increased by a historical event when large number of Greek people were forced to leave western Turkey where they had lived until 1922-1923. The same is valid for the Turkish people who lived in the northern Greek province of Thrace. And the fact that the Greeks are orthodox and the Turks are muslims is also not a condition to improve the situation.

The tensions between the countries are real and sometimes it gets worser as one of both sides is executing a claim they think to have. Like the occupation of some rocks in the Aegean or the threat to close, or better control, the Aegean as it is something of a Greek lake. At those moments they seem to be on the brink to war. But international intervention, pressure, and the sense that war will not solve the problem have until now de-escalated the tensions between the two.

A war will be therefore unlikely between Greece and Turkey. To much is at stake. But the situation remains dangerous even as Greece supported Turkey after the recent earthquakes. There are to much tensions and both think vital interests are at stake in the Aegean.

Cyprus

The situation on Cyprus is a reflection of the Greek-Turkish conflict. Cyprus is inhabited by a majority of Greeks and a minority of Turks. As the Turkish people were threated unfair by the Greek dominated government and institutions and when the Greeks, or better some religious and political representatives of the Greek community, wanted to unify Cyprus with Greece proper Turkey interfered and occupied about one-third of the island.

Cyprus have since been divided into a Greek- and Turkish part. The Turkish part builded an own state but it has been recognized only by Turkey. The division between the two parts is and have been nearly absolute. Contacts between the two is very difficult and every action of one of the two sides is met by distrust.

Greek and Turkey both do not want the Cyprus question to escalate and control both sides not to endanger the status quo. As no side wants to enter in a war in cause of Cyprus. If a conflict might arise on Cyprus it will nearly immediately spread out to Greece and Turkey proper. The consequences of a conflict are simply to large. But both sides try to maximise their position and this might increase the already tensed situation.

Turkey

Beside the external tensions of Turkey with Greece and on Cyprus, Turkey is also facing an internal threat. The integrity of the Turkish state is being questioned by a large minority living in the eastern part of Turkey. The Kurdish people demand more liberties, autonomy and some even independence.

A number of the Kurdish people organised themselve in the PKK, Partiya Karkaren Kurdistan. A militant organisation with a political wing, the ERNK, National Front for the Liberation of Kurdistan, and a military wing the ARGK, Kurdish National Liberation Army, with the goal to create a socialist independent Kurdish state. Under the leadership of Abdullah Ocalan, Apo, the PKK became a very well organised and ruthless organisation which with limited resources was able to make live very difficult for the Turkish security forces.

After the capture and trial of Ocalan the PKK has become more willing to compromise with the Turkish government, which in turn are not very eager, even unwilling, to negotiate with the PKK. As a gesture of his power and goodwill Ocalan has ordered PKK guerilla forces to leave Turkey or even to surrender to the government. Ocalan seems to be willing to do everything to pacify the Turkish government. To persuade the government to start negotiations about the Kurdish case with Ocalan as a negotiation partner.

The PKK commanders in the field were in the beginning willing to obey the orders from the PKK’s president Council, e.g. Ocalan. But the first splits have surfaced in the PKK. Cemil Bayik and a field commander, Haydar Alperslan, refused to participate any further in the socalled peace policy of Ocalan. Those two demanded the continuation of the fight against the Turkish government. If more field commanders and people from the leadership of the PKK refuse to cooperate, implement a peace policy, the unity of the PKK could be destroyed.

The fight for a Kurdish homeland in the South-east of Turkey is very likely to continue. Instead of fighting one organisation, the PKK, Turkish security forces will face more organisations as the unity of the PKK is just a matter of time before it falls apart. At first the new organisations will be weaker but after some time, 6 to 18 months, those organisations will have been restructured, new and more men, better armed, more and diversified support. In short instead of one snake, the PKK, many new agressive venomous vipers will have to be confronted.

Turkey is further confronted, as many islamic nations, with an another threat. The radical fundamentalistic elements in the society who want to change the secular system in Turkey into an Islamic republic with the Sharia as book of law are becoming more popular. Those people organised themselve in several organisations like the Islamic Brotherhood, the Jihad, Hizbollah and the Islamic Great Eastern Riders Front. All these organisations vary in size and methods. Some are more violent others are focussed on social work to improve the conditions of the people. But all have the same goal and receive support especially from the worser off in the society and from certain university students.

The fundamentalistic organisations wil not be able to make a large impact on the society. They will not receive enough support and with terrorism, bomb assaults and the like, they are just a nuisance. The security forces are still able to control them on the short to medium term. The moderate form of fundamentalism could count, on the other hand, to get support from around 20 % of the population. They could become more dangerous but they are still to small, considered as unreliable as a partner and more importantly unwilling to use violence.

Russia and the new states

The dissolution of the Soviet Union has created a large number of new states in the Caucasus and in the Asian part of the former Soviet Union. Nearly all new states happen to be muslim states but they insist that they are not muslim fundamentalistic nations. Politics and religion are separated, more or less.

A large number of these new states are experiencing problems with other states of with violent opposition parties who want to enforce changes in the country.

Even Russia itself is having problems with one of the many peoples, the Chechnyans, which are formally part of Russia. Further, Russia is involved in the majority of the conflicts in the new states. At least as an adviser and / or supplier.

Russia

The situation in Russia has not experienced any improvement in 1999. At best one can talk of some kind of stabilisation of the economy. But socially there has been a slight deterioration and politically things have become worser.

The external political position of Russia has improved somewhat as the Russian influence in the former Soviet Asian republics has been stabilised and more importantly is wished by the governments and people to establish stability and support against the muslim fundamentalistic organisations in the most southern Asian republics. The fundamentalists and the overspill of Uzbek guerilla fighters into Kyrgyzstan and the remaining pressure to all countries bordering Afghanistan as fundamentalists, weapons and illegal substances continue to flow into the bordering states and to the other territories of the former Soviet Union will remain a threat to the stability of the whole region. This threat will be accompanied by occasional low intensity conflict, guerilla raids but not strong enough to change the goverment.

The internal situation is much more complicated. Russia has problems in many regions as the central government is neglecting the rural provinces and republics in the country. They only want to use, exploit, the resources but are unable to deliver something in return. The majority of the regions learned to act on their own and are becoming ever more unwilling to execute orders from Moscow. Essentially they have become semi-autonomous regions.

The problems in the Caucasus are much more dangerous as they undermine directly and agressively the integrity of Russia. The area is threatened by muslim-fundamentalists who want to create one large muslim republic out of the Caucasus republics which now are part of Russia.

The radical muslims in the Caucasus receive some support from small organisations which have identical goals, the improvement and the enlargement of the position, power, influence and territory of the muslim peoples. Organisations like the Islamic Army try to undermine the Russian society and enforce their case by bomb attacks, e.g. terror. This will continue on the short term as those small organisations are difficult to identify but their actions will not support their goal. On the contrary it will undermine the muslim case as it unifies the Russian people and increases the willingness to destroy them.

The geographical center of the conflict is Chechnya but the ideological center, were the idea originated, is the Middle East. The idea for one muslim nation on the Caucasus comes from the Wahibi organisation. The Wahibi organisation is a muslim fundamentalistic organisation with strong links to nearly all terrorist muslim organisations, including Osama bin Laden, and protects and supports an islamification of areas with a muslim population. The Wahibi organisation is leaded by Emir Al Chattab whose real name is allegedly Habib Abd al-Rahman

The rebellious Chenchnyan republic, which achieved semi-independence status after the Russian forces were forced to leave the republic, overplayed their hand by trying to spread muslim fundamentalism into the whole region.

The Chechnyan warlord Sjamil Basajev, with ideological support from the Wahibi organisation, invaded Dagestan allegedly to protect his muslim brothers who were threatened by the Dagistani government. The forces of Basajev could be ejected out of Dagestan after some hard fighting with Russian forces with support of Dagestani militia forces. To return at another place in Dagestan some weeks later and to be thrown out again.

Dagestan is not Chechnya, the population is much larger and more diversified than the population of Chechnya. The Dagistanis do not want to become independent and prefer the present situation.

The Dagestani adventure could proof to be a vital mistake as it awakened and stimulated Russia’s feelings of revenge after the defeat in Chechnya. The defeat, Dagestan and the fact that Chechnya has been very irritating because of the illegal activities of Chechnyan criminal organisations, oil theft, kidnappings, arms and drugs business, prostitution, created a situation were the Russian government with support of the people decided to act and end the activities of the Chechnyans in the area.

The invasion of Chechnya has been succesfull as Russia did not make the same mistakes as the last time. They used better trained and paid soldiers, US $ 1.000 a month instead of US $ 40, better tactics and strategy. They isolated Chechnya, softened up enemy positions before moving in ground forces and remained in the low-lands of Chechnya, at least until they removed all possible opposition from there. Entering the mountainous part of Chechnya is more dangerous but with good forces, adequate artillery and air support, if the area is sealed off and if the Russians are willing to accept a higher number of casualties then in the first phase of the conflict then it is possible to defeat the Chechnyan warlords with their guerilla forces.

The conflict in Chechnya will continue in the next millennium. The Chechnyans will rely on their fighting power and willingness and on the favorable geographic circumstances in the mountains. This will harden their resistance but if they lack support and the Russian forces methodically reduce their freedom of movement and their numbers they will be not able to win. Within 18 to 24 months the Russian forces would be able to defeat the Chechyan warlords.

Kazakhstan

The most wealthy and most stable of the new countries in the Asian part of the former Soviet Union is experiencing few problems. The only problem might be the large group of Russian settlers in the north and north-western part of the country. There are rumours which claim that certain people, groups, prepare a coup to secede the Russian dominated part from Kazakhstan.

These rumours will be partly true as the original Kazakh population are receiving better positions and faster promotions so their is some dissatisfaction emerging with the Russian population. And partly untrue as the Kazakh government is to afraid of such a development that they imagine to much to it. It is therefore very unlikely that there will be some kind of armed Russian opposition against the Kazakh government on the short term.

Tajikistan

After years of fighting several muslim fundamentalist organisations there have been reached some kind of cooperation agreement between the government and the largest and now more moderate, the United Tajik Opposition, and a number of smaller muslim parties like the Islamic Revival Party and the Democratic Party. Tajikistan will be more islam minded in the future and less inclined to support the neighbouring secular governments in their struggle against the fundamentalistic muslims.

The main threat to stability in Tajikistan may be removed but there are at least still two minor threats around. The consequences of a spill over from the conflict in Afghanistan and the activities of former premier Abdulmalik Abdulladzhanov and former colonel Makhmud Khudoiberdyev.

The spill over from Afghanistan will be on the short term mainly the refugees and the arms and drugs trade. On the long term, especially if the Taliban in Afghanistan is succesfull, small groups of fighters of the northern alliance might pass the border and use Tajikistan as a base. Then things will look different and more threatening.

Abdulladzhanov and Khudoiberdyev are probably hiding in the countryside or in Uzbekistan as they allegedly received support from there. They remain a latent threat and are active in the Khojent region. The number of fighters under their command is not very large but if Tajikistan hides or even supports muslim fundamentalistic elements, the people around Jumaboy Khodjiyev, better known as Juma Namangani, out of Uzbekistan, the support for Abdulladhanov and Khudoiberdyev could increase dramatically. Remember Uzbekistan is the largest military power in the region.

Uzbekistan

The authoritarian government in Uzbekistan has been under pressure by activities of muslim fundamentalists led by Jumaboy Khodjiyev, better known as Juma Namangani. Namangani is a 35 year old militant muslim who fought alongside the Taliban in Afghanistan and the UTO in Tajikistan.

After a crack down of the fundamentalists the government could eliminate the most dangerous elements out of the society. Namangani with about 1.500 followers could getaway and sought initially refuge in Tajikistan. The Tajikistan government, which includes the fundamentalistic party the UTO, does not disapprove the fundamentalistic muslim movement and their goals in Uzbekistan but is not able to openly support Namangani. They covertly supported them and allowed them to move into Kyrgyzstan where they kidnapped some foreigners to improve their war chest. Where after they moved into the Fergana valley which is geographically strategic situated, close to Uzbekistan and very rugged and inhospitable, and the population is conservative so friendly and most likely supportive.

Out of the Fergana valley in Kyrgyzstan Namangani plans to launch a guerilla war into Uzbekistan to overthrow the government. With bomb attacks on important people and places and the incursions out of the Fergana valley into Uzbekistan Namangani hopes to get popular support and weaken the government to eventually replace it with an islamic republic.

Uzbekistan will continue to suffer from a low intensity conflict as long as Namangani and its kind are able to receive support from abroad or are allowed to operate from foreign bases. With or without approval of the neighbouring country.

Kyrgyzstan

Kyrgyzstan became a victim of the spill over about the conflict in Uzbekistan. After the crack down on islamic fundamentalists in Uzbekistan a large number of islamic fundamentalist fighters fled to Tajikistan and there after to Kyrgyzstan into the Fergana valley which perfectly fits for the launch of a guerilla campaign into Uzbekistan. An additional benefit is that the Kyrgyz government is not able to do much against it as they lack the capabilities and resources to eject them.

The promised and partly delivered support from Russia, Kazakhstan and Uzbekistan is absolutely necessary to improve the capabilities of the Kyrgyz armed forces. The support should enable them to eject the rebel forces of Namangani out of the Fergana valley.

Kyrgyzstan will face some hard fighting on the short to medium term to eliminate the foreign forces on their soil and to keep them out. Especially as only a combined action of Uzbekistan, Kyrgyzstan and Tajikistan will really destroy the muslim fundamentalists organisations in the region. And this will be very unlikely considering the position of Tajikistan.

Armenia

The Caucasus remains an area of tensions. Not only the Russian part of the Caucasus is volatile but the other countries in the region are experiencing the same kind of tensions.

The Armenian conflict with Azerbaidjan about the Armenian enclave Nagorno-Karabach has ended in Armenia controlling the area, a cease fire is in place, Azerbaidjan wants to regain control, both are however economically unfit to extent a war on the short to medium term, the future oil revenues will improve the Azeri negotiation position but the oil pipelines will cross Armenian territory or will be very close. Essentially the situation is in a status quo, on the short term no country is in the position to make any improvements. The war between the two antagonists, or the end of the conflict, will take some time if it cannot be solved at the negotiation table.

The main pressures for Armenia will be the internal problems about the bad performing economy, social dissatisfaction, the uncertainty about the Nagorno-Karabach question and the willingness to use violence to change the government policy.

As long as the Nagorno-Karabach conflict was hot all attention was channeled towards the conflict but now the former fighters want to see a reward or improvement which they do not get. This will fuel more agression. Violence will continue in Armenia as long as there is no solution to the economical problems. The socalled patriots will continue to attack the government for their, in the patriots understanding, bad performance.

The Middle East

The Middle East will remain a powder keg, but the fuze has been taken out and the matches are in the cupboard. There has been a relaxation in the relations between the opposing states in the Middle East. Not all the problems are eliminated, far from it. As the majority of the nations continue to improve their war fighting capabilities, there is a low intensity conflict going on in Lebanon, Iraq is still the same bad man of the region and old animosities are still prevalent. But there is change in thinking which becomes best clear in the fact that the will to start a war has diminished dramatically. This development can be considered as very positive in a region were it has been normal to start conflicts, use violence, for the smallest of things.

Lebanon

Lebanon is a country under foreign control. Israel is controlling, with support of the South Lebanese Army, the security strip. Syria is controlling the Bekaa valley and indirectly the Lebanese government. And finally Iran has indirectly a controlling stake in South-western Lebanon as they advise, train and supply the Hizbullah.

The Lebanese government naturally disapproves the occupation of the security strip by Israel. But they do not take any action to retake the security strip and they also do not promise to guarantee that, if the Israelis withdraw, it will be safe and peacefull in the border region, e.g. no missile attacks on Israel and no commando raids on Israel. They simply are not able to do one of both things. Militarily Lebanon is a midget compared to Israel and the power of the Lebanese government is limited to the cooperation of the Hizbullah, Syria and the many clan leaders to make and execute policy.

So in short the Lebanese government is demanding the unconditional withdrawal of Israel. A demand which will be very difficult, if not impossible for Israel to fulfill. The security demand of Israel would forbid such a policy. It would leave northern Israel at the mercy of unfriendly organisations like the Hizbullah, Hamas and the radical Palestinian organisations who disapprove the peace process or for that matter the existence of the Israeli state. But there could be a small ray of hope for Israel. Technology, occasional military action and negotiations could minimize the security risk to an acceptable level.

The conflict, activities, in Lebanon have been and are mainly between Israel with support of the South Lebanese Army, SLA, and the Hizbullah with Iran and Syria sitting in the back ground and looking what is happening. Israel had created the security strip and the SLA as some kind of militia army, mercenaries, to guard the security strip against incursions from terrorists. At first the SLA was an effective force but as the Lebanese poltical situation became more clearer and only one opposing force remained, the Hizbullah, the effectiveness of the SLA began to wane. The Israeli Defence Force had to take over more positions and patrols to limit the movement of the Hizbullah.

In this second part the Hizbullah with generous support of Iran could turn around the situation. At first the terrorist were hunted but now the IDF and the SLA are more or less forced into strengthened positions with now and then patrols into the surrounding area. Only with a lot of air support and occasional larger operations of the IDF they can continue to control the security strip. The weakness of nearly all occupying forces is the attrition of low intensity fighting with road side bombs and ambushes. This undermines the capabilities and the morale of the IDF and the SLA.

The small withdrawal of the IDF/SLA from some postions, Jezzine, will not be viewed as a friendly gesture but as a weakness. It will encourage the Hizbullah to continue the fight as Israel get ever more tired of the occupation of the security strip.

A total withdrawal will become ever more attractive for Israel as the costs in material and human lives gets higher. And they will increasingly be able to protect their border with occasional operations of the IDF into Lebanon, massive air-ground operations and the improved defence systems like the Nautilus laser system and the Arrow II missile system to counter incursions and missile attacks. An additional advantage would be that Syria would loose a bargaining chip in the negotiations over the Golan heights. A total solution as wished by Syria would then be unnecessary.

Israel vs Syria

Beside the above described problems in the security zone in Lebanon Israel has another external problem with a territory which they occupied during the 1967 six day war. This strategically and as a water source very important area, the Golan heights, is located at an area which can overlook northern Israel to the sea and upon Damascus in Syria. Until 1967 the Golan heights were part of Syria and since then they wanted to recover the territory from Israel. By war in 1973 and since then by pressure on Israel. They have used physical pressure by a very large military force in the triangle Damascus-Lebanon-Jordan, by around 30.000 men in the Bekaa valley in Lebanon and the virtual control of the whole of Lebanon. And more psychological pressure like the threat of force and terror and by diplomacy.

The end of the Cold WAr and the second Gulf war gave Syria another opportunity to regain the Golan heights. The end of the conflict, occupation, could be reached by negotiations. Several rounds were held without any direct results. As no side really was willing to make a commitment or sacrifice. Their own interests were that important that a compromise was not attainable. As Syria wanted to regain full souvereign control, Israel demanded demilitarisation of the Golan heights, withdrawal of Syrian forces from the border area and the right to keep some vantage points to control the activities on the Golan and its surroundings. And ofcourse the right to control the water distribution of the region. Both demands are difficult if not impossible to reconcile.

The Israeli-Syrian problems will continue to play an important role in the Middle East. None of opponents is however willing to go to war as Syia is at the moment ill-prepared to go to war. The Syrian military capabilities are severely limited by a lack of spare parts, the wrong kind of training, counter-insurgency instead of offensive operations, and an internal power struggle about who to succeed the terminally ill president Hafez al-Assad.

Israel also will want to avoid war as it is very expensive and it would bring no additional benefits for the security of the Jewish state. Militarily Israel is fully capable to defeat Syria, or any other country in the region, but financially and politically it cannot afford a war.

Israel

Of course Israel has many other enemies in the Arab and/or islamic world as the majority of those countries and people have some problems with the existence of the state of Israel and their occupation of Arab land and holy places. None of these enemies is however capable to defeat nor create medium to large damage to Israel. An Iranian or Iraqi nuclear-biological-chemical missile threat is still some years away and even if they would possess such kind of weapons within 8 to 10 years, using them is a total different ball game.

Israel’s main problem is internal. The Palestinian question has to be solved to the satisfaction of both sides before stability will return to both entities. The large numbers of Palestinians in the Gaza strip and the West Bank need to have some kind of state and economical future if you want to refrain them from joining fundamentalistic organisations like the Jihad or Hamas. If the question of Jeruzalem and the exodus Palestinians can be equally fair dealt with peace will be long lasting in the Middle East. The best way to eliminate enemies is by taking away their agony.

It will be impossible to satisfy all so a number of small radical organisations will continue to fight Israel. They belong to the group of enemies which hate Israel but who do not have the capabilities to create large damage to the existence of Israel as a nation. Their method will be terror attacks, bombs, preferably in Israel. This will have a large psychological impact on the Israeli society but not on the nation itself. If Israel overreacts and punishes all Palestinians, e.g. the new Palestinanian entity, state, militarily or economically the consequences of those actions could be more damaging to Israel.

The Palestinian Authority

The hopefully new nation in the Middle East will be the new Palestinian state on the Gaza strip and the West Bank. With international support and economic cooperation with Israel this new nation could become economically viable.

This new Palestinian state will however be under pressure from internal fighting about power, positions and wealth. Especially if the current leader Yassir Arafat has to be replaced. And from muslim fundamentalistis elements like the Hamas.

The internal differences and fighting will lead to more suppression and the weakening of the new state. This will undermine the political and economical stability and future of the new country. On the short term this will increase the security of Israel but the chaos will strengthen the postion of the Hamas.

The Hamas has been able to create a large and strong network of institutions and followers in this area. They might wish to expand their influence in the new state’s political hierarchy and eventually instigate tensions between Israel and the new Palestinian state. They will never be able to become a real threat to Israel as the new state simply lacks the resources to do so. And the strength of the Hamas is and was social support to the people and insurgengy, popular resistance read violent demonstrations, against an occupying force.

The future of the new Palestinian state will depend on the ability of Arafat to built stable state institutions to stimulate economic growth and give the Palestininas an opportunity to make a living. If the current policy of suppression, corruption and nepotism will continue it will be very likely that the country will experience fighting between the main factions within the government with the Hamas picking up the spoils. Which also will bring no peace nor progress.

Iran

The islamic republic of Iran is experiencing some internal problems as there are some changes in the society. The population has become divided as one part is more positive about the policy of the conservatives, hardliners, under the leadership of ayatollah Ali Khamanei and the other part is favoring the more moderate policies of the more liberal, in an islamic fashion, president Muhammad Khatami.

The division has created tensions as the conservatives are trying to limit the influence of the moderate part of the society by closing news papers and proscecuting and sentencing to jail of followers of Khatami. This has led to several demonstrations which ended in confrontations with the security forces of the country.

This process is likely to continue. The conservatives are likely to able to control the liberals on the short term as they are controlling the majority of the important institutions like the ministries, police, justice and judiciary. And even if the chief executive is not a conservative nearly everybody else in the departments will be conservative.

The economic difficulties in Iran will make the problems of the conservatives larger and at the end uncontrollable as dissatisfaction will mobilize large parts of the population against them. So demonstrations and suppresion will be very likely on the medium to long term.

The external problems of Iran are less dangerous. There is a dispute with the United Arab Emirates, U.A.E., about the posession of some islands in the Persian Gulf, Abu Musa and the Greater and Lesser Tunbs islets. Some of them, Abu Musa and some islets of the Greater Tunbs, are occupied and fortified by Iran. But this is more directed in defense of the large U.S. presence in the Gulf than against the U.A.E. A conflict about the islands is unlikely as both do not consider it as a premier national interest and prefer a diplomatic solution.

The differences with Afghanistan are of a different character. The difference in the religious interpretation of the islam, e.g. the fact that the Taliban is Sunni and Iran Shia and the success of the Taliban in Afghanistan is posing a threat to Iran. The Afghan threat is not physical but more psychological. The Taliban ideology could spread to other islamic countries, including Iran, and undermine the position of the Iranian religious leadership. But the Iranian support for the Northern Alliance in Afghanistan could divert the total success of the Taliban and essentially remove the immediate threat from the position of Iran.

Iraq

Iraq will remain the main threat to the stability in the Gulf region. Even if Iraq is experiencing internal difficulties with the Kurdish people in the north, organised into the KDP and PUK, and the marsh Arabs in the south. The Kurds and the marsh Arabs, which are Shia and pose the majority of the people in the country, will not be able to destroy the government of Saddam Hussein. Even if the opposition would cooperate it will prove to be very difficult, if not impossible, to eject Saddam out of power. The system of security services, the republican guard and the ruthless suppression of everything with only the suspicion of opposition is the explanation of the survival of Saddam Hussein.

Without the support of some higher commanders of the republican guard, air force an security services any coup or insurrection will be fruitless. And even those commanders will need to be very careful and secretive. It will be very difficult to find the necessary number of important identical spirits wiling to risk their lives.

The strength of the regime became clear as Iraq resisted the world community in the second Gulf war, the UN embargo, the consecutive air riads on Iraqi targets as they did not obey the UN security council resolutions and in general the limiting of Iraqi souvereign right.

Even the UN installed no-fly zones in the north, north of the 36 parallel, and south, south of the 33 parallel, of the country could not stop the ambitions of Saddam Hussein. He had to wait for the right moment, right weather, only had a one or two night time-span and could mainly use infantry and some armoured formations before he could eliminate the US sponsored northern security zone and as he supported the KDP in removing the PUK from some important positions. The UN was equally uncapable to protect the Kurdish and marsh Arab peoples in Iraq from the activities of the Iraqi Republican Guard when they destroyed their resistance.

Saddam Hussein will remain in power as there are no competitors available which could replace him. It is very difficult to survive such an idea, not to speak of an attempt. Iraq with its current power system will be the same on the short to medium term, as will its problem.

The Iraq problem is the possible threat it may become if it is out of control. If the embargo and the no-fly zones are enforced the options of Iraq are limited. But if it can do what it would like to do it will develop itself into a major regional power with large conventional armed forces with medium to long range NBC capabilities. Especially this last factor is feared by the U.S.A. and especially Israel.

Iraq would like to play a dominant role in the region and the world. It would demand respect and even some kind of retribution for the efforts in the first Gulf war and for the damages Iraq had in cause of the Kuwait affair. The occupation of Kuwait was in the eyes of Baghdad a legitimate action as Kuwait owed much to Iraq and Kuwait is and was in the end some kind of renegade province. But this is another story.

In the short term Iraq will not pose a large threat to the region. Its military and especially economical capabilties have been much degraded by the war and the embargo. Iraq will remain able to act against its direct neighbours with small scale operations and terror. But as said before, as long as the UN, read US armed forces, are in the vicinity its options are limited.

Addendum

What need to be mentioned is the real future possibility of war about water. In this water scarce region a decrease in water availability because of drought or diversions with more demand at the same could be the cause for some big conflicts in the future. A large number of countries in the Middle East, Israel, Jordan, Syria and Irak, are very vulnerable to the water shortage.

Every diversion could be a casus belli. Israel as a large user and in command of the sources on the Golan heights and the West Bank could have problems with Syria and Jordan. Turkey who commands the major rivers into Syria and Iraq could have problems with both if it continues it diversions of water into irrigating projects in Turkey.

At the moment the water problem has not received the highest attention but this can change at a very short time span. Within two to thee years this situation can be changed. By then water will be a major cause for war.

November 1999

November 1999

Financial Affairs

The financial road towards 2000

1999 have been until now very volatile at the majority of the stock markets with the exception of the far east. The Pacific-rim stock markets have been performing very well. It seems as they have succeeded in the economical turn around after approximately 2 years of recession.

The US stock markets have been very volatile and experienced several ups and downs. Very generalised the year looked like this. January and the first part of February positive, to end of February and March negative and April and half way May were the most positive of the year. The summer months were very flat and moving sideways with now and then a small growth spurt but overall with a negative tendency. To reach new lows for the year in October as the psychology, e.g. the fear of the high stock valuations, and the possible increasing inflation, e.g. rising interest rates, pushed the markets down to the Dow Industrials 10.000 point level. The European markets were more or less following the US trend but remained more positive in general. The far east and the emerging markets were also influenced by the US trend but they could gain back much of what they had lost in the last two years. Especially the numbers in Japan were very promising as the Nikkei 225 reached the 17.000-17.500 level.

The United States of America

The decline of the stock markets in the US were, as mentioned above, mainly based on psychological factors. It is therefore to early to speak about a bear market. As a possible rise in interest rates are now more or less included in the stock market, an actual rise will only cause moderate damage. The Y2K problem could lead to some more problems especially in the last quarter of 1999 and the first quarter of 2000. Y2K remains however to our understanding and estimates more a virtual threat than a reality.

But remember a decline is also an opportunity to get into some new stocks which were before exorbitantly expensive.

The current situation can be better described as that the bull takes a rest to continue at the end of 1999 or in the third and fourth quarter of 2000. The economic fundamentals are still to good to start a bear market.

The threatening inflation and the high stock valuations will remain however a problem in the US even as the actual figures, especially the inflation indicators, are not as bad as expected. The Producers Price Index was higher than expected but they were distorted by the non-inflationary rise in tobacco, car and oil prices. The Consumer Price Index was more moderate and in line with expectations. The CPI will deliver a better, or correct, view on the US economy and that inflation is not yet that dangerous. The majority of the US companies are thereby performing better than expected. They continue to beat the market expectations. These positive indications should lead to some additional growth but nothing of the kind is happening. All gains of one day are being eliminated the next day.

There is some kind of war going on between interest rates and the earnings growth of the companies. The interest rates have a depressing effect on the market where as the good results should support the market. The federal reserve, fed, will continue, with the big stick of rates, to calm down the market with the goal of avoiding inflation. The fed considers the high stock valuations and the fast growth of the stock market as an unwelcome development which could stimulate inflation. Occassional interest rate rises, speeches of the chairman Allan Greenspan of the fed and especially the threat of even more rate hikes depress the stock market. Consequently a very likely movement of the market is, after the 10 to 15 % drop of September-October, sideways with a slight negative trend on the short to medium term. We estimate the Dow Industrials at the end of 1999 in the 10.500 – 11.500 range, but most likely at the bottom side of the estimation. It remains a volatile market with some companies are performing very well where as other are not able to break the trend.

The US economy is hot but not overheated and a soft landing is certainly possible. As is indicated by the production/order estimates for the coming months which estimates a lower production for the next two to three months.

The stock market’s health is further looked after, protected, by the fed. Even if it can be thought that the control of the stock market is not the job of the fed it could be usefull as to forego the creation of a bubble on the stock market. If some air can get out now, the markets could continue with a stable growth in the next couple of years of 15-20 % per annum instead of the very high return of 25-30 % growth of recent years.

The US market

It will be ever more difficult to select the right stocks. Some groups of the economy will continue to outperform the others but it will increasingly dependent on the individual company’s performance if a company is a growth stock or a laggard. We will give some indications of some sectors and about their situation.

The pharmaceutical sector is still very expensive and even if the returns are above expectations and the product pipeline is promising, every negative publication will be used to sell the sector. On the short term the drugs stocks will be flat but on the longer term they will be very promising. A healthy financial position, a promising product package and an increasing group of customers, e.g. higher demand, will make the sector very interesting.

The tech sector is ambivalent, the hardware sector, with exception of Apple and some chipmakers, is depressed by the Y2K threat perception. The software side is divided into general and maintenance/implementation software providers, the likes of Microsoft, CSC and CA, and the application companies, the ERP, internet technology and like group. Were the first group will remain profitable the second group will be depressed by the Y2K problems and contract deferments until the first or second quarter of 2000. The internet provider and E-commerce business group of companies will remain growing in scale and returns. The subscription numbers continue to grow but the e-commerce sales remain a little behind expectations. In general this group will remain positive. The high stock valuations of the internet companies is the only limitation for a strong growth of this sector.

The telecommunication sector will see a stable growth. All will profit from the increased use of telecommunication services by the internet users. Not only voice but especially data transfer will be a major boost to the returns of the telecommunication companies. In this competitive sector only proper management, product management and cost control will divide the better companies of the group which can and will outperform their competitors. The sector will probably not deliver any large increases in stock price as they are occupied in digesting the latest acquisitions and fusions. But we do not exclude a pleasant surprise in this sector. Some of the baby-bells and medium sized operations could become very attractive as they might grow faster than expected. On the medium to long term the telecommunication sector remains very interesting.

The other tech related group are the consumer electronic producers and distributors. This group will be very profitable if they are in the right group of products. The companies in the DVD, flat screen and mobile phone equipment production and distribution will show a very nice growth in the coming quarters. Especially the retailers will profit from the upswing in consumers electronics.

The financials are on the edge as interest rate hikes will undermine the sector but if the Y2K problem is actually depressing the stock market and the inflation indicators remain moderate then there will be no interest rate rise which will be benifial to the financial sector. The financial sector will most likely make good the territory they have lost in the first three quarters of 1999 as the latest scenario is the most likely to happen.

Energy will continue to be one of the best performing groups in the market. The higher oilprice and the increasing demand, winter time in the northern hemisphere and the improved economic situation in South-East Asia, will continue to boost the performance of the energy sector. All parts of the energy chain will be promising, exploration, procesing and distribution will experience booming markets.

The auto/car producers and sub contractor sector will continue to do well. The best years might be over but the next couple of years will not bring to much feared collapse in car sales. The sales in the US might remain more or less the same but the rest of the world will see an increased demand for cars and trucks.

Other sectors like paper, specialist chemicals and even the Caterpillars will see improved sales and a rising stock price. Where as US demand will not see any large improvement, world wide demand will improve the numbers of those companies. A weaker dollar will additionally reinforce their position on the world market.

The Aerospace and defence sector will also experience better times. Especially the defence sector will see after the recent drop in the share prices a clear improvement. Beside the good domestic market these companies will receive more international demand. This moment is the right time to enter this sector as they only can become better.

The European markets

The European stock markets have been and will be influenced by the sideway movement of the US markets, it will not receive any support, upward pressure, from the US like they had in the last couple of years. This will somewhat limit European growth but this could be benificial to the market as overheating and a bubble will be less likely to occur. The majority of the European markets will experience growth as the European economies are improving. Their home markets will become more healthy, the emerging markets improve and the US market will remain stable. In general the European markets are very promising for the coming quarters.

There will be however a clear division in Europe. Western Europe, the members of the European Union, will outperform Eastern Europe. In general Western European countries will grow in 1999 around 2,5 % with a low inflation of 1+%. The growth estimates for the year 2000 will be better as all indicators, production, marketconfidence, export and consumer demand are better than before. The European economy is expected to grow at an average 3+ % for the year 2000 with a core inflation of about 1 to 1,5 %. The countries of the European Union are going to experience a wide based growth in the coming years. Not only the export oriented companies will be performing well but also the domestic markets will see an above average growth.

The forecasts for Eastern Europe are not that rosy. As Eastern Europe has been badly hit in 1998 by the spill overs from the Russian crisis which put an end to the economic recovery after the dissolution of the Soviet empire. The southern part of Eastern Europe have been additionally hurted by the Kosovo conflict in 1999. The Kosovo conflict limited economic activities, destroyed the trust in the markets and increased the government expenditures.

Eastern Europe’s economic performance in 1999 will be lower than expected as the exports are lower than estimated, government expenditures are to high, the inflation remains high and the foreign investments have become lesser since the Russian crisis. Eastern Europe can be divided for the year 2000 into roughly three groups. The first group with an annual growth for 2000 of above 3 %. The second group with a growth of 2 to 3 %. And the third group with a growth of lesser than 2 %. Countries in the first group are Hungary, Polen and Slovenia. The second group, Czech Republic, Slowakia and the Baltic countries. And the third group, Rumania, Bulgaria, Russia, Ukrania and Belorussia. Were the last two even might experience zero growth or even an negative growth figure fo 2000. Where as the Ukrania only has problems with the performance of the economy, Belorussia has additional problems because of the ineffective and incompetent political leadership. The problems in Russia surpass them all. In Russia the problems are about a bad performing economy, political indecisiveness and struggle for positions and even more dangerous, a little war in Chechnya.

The Eastern European economies require a lot of investment and even more time before prosperity will become a common good. Their industries are in desparate need of financial and technology support. The wages might be low but outdated equipment, unproductivity and unattractive products destroys the comparative advantage of this group of countries. Beside many low perfoming companies there are some companies which are capable to compete on the world market but these are mostly foreign owned and operated or they are / were a kind of special case, model, company. But they are to low in number to make an impact on the society.

Beside the wage advantage, educated workforce and flexibility some Eastern European companies remain attractive as a bridgehead into a new market. The best companies have already been acquired but with some additional work and ofcourse investments there are still some good companies available. The first hype in Eastern Europe has been over but on the medium to long term Eastern Europe, especially central Europe, remains an attractive market with a well educated population of around 100 million people.

Emerging Markets

The emerging markets of South-East Asia, including Japan, and Latin America are finally recovering from the crisis of 1997. Especially Japan, South Korean and the majority of the countries in South-East Asia have been growing very well in 1999. The situation in Latin America is improving a little more slower but the trend is and will remain positive.

The Pacific-rim

The improvement of the Japanese economic situation is one of the main causes of the improvement of the whole South East Asian region. After years of low consumer demand the Japanese people finally start to spend more money. The economy is not anymore only dependent on export and government spending. The consumer demand is however not that strong as it could replace export.

Which brings us to the next problem. The improvements in the Japanese economy has not only positive effects. The Japanese currency, the Yen, has become more expensive because of the success. And an expensive Yen undermines the export position and finally the economic growth of Japan. The control of the currency is therefore very important to let the Japanese economy continuing to grow.

There is another problem which might undermine the recovery in Asia, minus China. The U.S. Federal Reserve will try to forego inflation in the U.S.A. by limiting the availability of money, e.g. rising interest rates. If this happens the repayment and interest payments of US dollar dominated debts will become more expensive and the availability of investment capital will become more scarce. Two developments which are highly unwelcome to a region recovering from a financial crisis.

The improved Japanese economy, the improved internal political and economical situation in the majority of South-East Asian countries and the increased demand form the west stabilised and stimulated economic growth in the region. This will be boosted by the willingness of investors to re-enter the region.

All countries in the Pacific-rim region will be part of and benefit from the recent economic recovery with the exception of North Korea, China and Indonesia. The internal problems, political, economical and social, of these countries make a recovery very unlikely. Some individual companies in China and Indonesia might do very well but they are clearly the minority. On macro-economic level there are corruption, incompetent management, bad loans, unproductive protected industries and many more problems which only can be dealt with harsh measurements which are unwanted by the ruling elites.

Indonesia might be the only one which is going to introduce the necessary changes but it remains to be seen if there are enough changes and more importantly if they are really carried out.

The other Pacific-rim countries, South Korea, Taiwan, Japan, the Philippines, Malaysia, Thailand, Singapore and with some luck Vietnam are more promising. They are on the road to recovery and will most probably not be caught in the same problem of before 1997. Short term debts, bad loans, nepotism and unproductive investments.

Direct and indirect investments in the above mentioned countries will be secure and profitable again but not as profitable as in the pre-1997 days.

The best performers in the region will continue to be Australia and New Zealand. They will profit the most from any improvement in the region as they will regain markets that were lost during the crisis. The recently acquired new markets in Europe and north America will be further developed and ofcourse Australia will benefit from the additional revenues of the Olympic Games in Sydney.

Latin America

Latin America had its share of problems with the currencies and economic performance. Countries like Brazil and Venezuela have experienced currency devaluations while the currencies of Mexico, Argentina and Chile have come under pressure. For both however it is valid that they experienced a fall back in growth as internal and external demand and investments into the region diminished rapidly. The situation in the other Latin American countries, with the exception of Colombia and Ecuador, have been depressed by currency pressures, lower demand and lacking investments. Colombia is a case on its own as the economy is nearly destroyed by the civil war. Ecuador is on the other hand in deep problems because of the bad government budget situation and the pressures of to much foreign debt.

The Latin American countries, again with the exception of Colombia and Ecuador, have experienced a slow recovery. As the international situation improved demand improved. The internal budget problems and the pressure on the currencies have been alleviated by a combination of government action and IMF support packages.

As long as there is no medium to large increase of the interest rates of the U.S.A this positive economic development will continue. The economic recovery will be slow but stable. The following countries with the largest economies in the region will develop best, the best and fastest to the slower are lined up, Chile, Argentina, Mexico, Brazil and Venezuela. The other countries, again with the exception of Colombia and Ecuador, will follow the five countries mentioned above at about the same pace as Venezuela. Where as the development of Honduras, Nicaragua and Guatamala will be the slowest as they have still not recovered from the destructions of hurricane Mitch.

In general terms Latin America is improving but slowly as the structures of the government, the companies and the economy do not allow for a fast recovery. On the medium to long term Latin America is worthwhile to get your attention and make some investments, especially indirect investments could be profitable. Direct investments into the region,with the exception of Argentina and Chile, are more insecure because of the political and legal instability in some countries. Consider the problems MCI-Wordlcom and AES are facing in Brazil after acquiring a company in that country. A treatment which a Brazilian company would not receive but because it would be more expensive to withdraw from these investments they have no other option then to accept.

October 1999

October 1999

Asia, out of the dark?

Asia, the Asian-Pacific area has been severely hit by an economic crisis in 1997. The economies collapsed, fortunes lost and unemployment started to rise. The positions of many governments became unstable as quick solutions were not available. Some could stabilise after some time and IMF support packages, even if the IMF advice was very often doubtfull. Other countries, especially in Indonesia, the crisis revived internal problems. The political and economical weakened governments came under pressure from interest-groups or more dangerous the independence movements. The government and the independence movements reacted violently to enforce there very often maximum demands, political solutions were simply impossible in this situation. And finally the crisis has been the cause that differences between some countries were intensified and became more tensed than ever before.

The main question now is: has there been, after two years, a recovery of the economic situation, could the internal political problems be solved, have the inter-state tensions diminished or has there been a deterioration of the situation? We will give a summarized review of the countries who were or are most in distress.

The northern Asian Pacific area

This region includes China, Japan, the Koreas, the Philippines and Taiwan. The Koreas have been severely hit by the economic crisis and Japan and the Philippines have been just moderately hit by the economic crisis. China and Taiwan have been able to avoid the major consequences of the economic crisis. But all, except Japan, have some political problems which could become more dangerous in the future.

The problems of the Philippines are largely internal but the problems of China vs. Taiwan and North Korea vs. South Korea have an inter-state character and are potentially more threatening and destabilising to the region.

Japan

The situation in Japan has seen an improvement over the last nine to twelve months. The negative growth situation of 1998 seems finally to be turned around in a small growth figure of 1 to 1,5 % for 1999. This improvement is reflected by the Tokio stock market as the Nikkei 225 index is approaching levels of pre-1997, or above 17.000 points. This shows an increased trust in the capabilities of the Japanese economy and an indication that the improvement will at least continue in the next half year. The Japanese economy is recovering from the recession but their remains a but. The problems in the economy and the in western eyes sometimes peculiar way of doing business in and between companies are not yet eliminated and this, together with the expensive yen and high national debt, might delay a full recovery.

Japan is experiencing a recovery after approximately a decade of very limited and negative growth. Finally things seems to improve and the whole Asian Pacific region is showing growth and improvement over 1999. As mentioned before in this report series if Japan recovers Asia will recover. But the region in question should not forget to solve and eliminate the problems and weak spots in the economies of nearly all countries in the region, including Japan.

North Korea

The economical situation in North Korea is much worser and probable the worsest of the region. This has nothing to do with the recent Asian investment, debt and currency crisis but with the political and economical system of North Korea. The entire North Korean production system, agricultural and industrial, is outdated, ineffective and essentially bankrupt. This situation was aggrevated by the recent natural disasters which delivered the final blow to the North Korean economy. The only more or less functioning parts of the North Korean production capacity have been the missile and weapons of mass destruction facilities. And ofcourse the intelligence/secret police, suppression, apperatus but this will be hardly supportive to economical well being of the country.

The North Korean population is threatened by starvation, the production is not showing any improvement and the tensions with South Korea have reached levels which can described as close to hostile and conflict. But the relations with other countries have become worser too. It seems as the internal situation deteriorates the relations with South Korea and to a lesser extent the USA are reaching new lows.

The relations with the USA got worser as there was a difference about the interpretation of an agreement between North Korea and the USA, South Korea, Japan and the European Union. In short, North Korea would stop the construction and use of two or three nuclear High Enriched Uranium power plants and would allow a number of inspections into North Korea in exchange of fuel, food and two modern Low Enriched Uranium nuclear power plants. As North Korea continued research into nuclear weapons at another site and refused inspections at some places where as at the same time a number of deliveries to North Korea were late or were simply not delivered there was an increased tension between the two sides. The disagreement about the interpretation could be more or less solved and the program seems to be on track again but the recent test firings of medium and long range ballistic missiles and the actions of North Korea in disputed waters put the North-South case back on the international political agenda.

The naval maneuvers and the sinking of some North Korean fishing boats and naval craft by the South Korean navy in the Yellow sea between China and the Koreas in a by North Korea disputed area has deteriorated the relations between the North and the South to the utmost. War would be a step to far but the end of diplomatic relations and to put the armed forces on a higher alert status has been the result.

The political bartering, sometimes better described as black mail, with the USA to receive additional funds has been more or less succesfull and improved the relations between the two but it did not limit the tensions in the region. The relations with Japan continue to be worse as Japan feels insecure after the last test fire of a long range ballistic missiles, Teapo Dong 1, which has overflown Japan. The North Korean promiss not to have any new tests, as long as the negotiations with the USA continue about the improvement of their relations, did not take away the Japanese feelings of insecurity.

Concluding, it can be stated that the Korean peninsula remains a highly unstable place. The differences between the two sides remain agressive and at times confrontational. The very bad economic situation in North Korea will most likely increase the tensions between North and South Korea. The actual problems about the implementation of the nucluar power agreement, the differences on interpretation of the demarcation line in the cease fire agreement and the essential non-issue themes of the economic problems, the brinkmanship games to receive financial and material support from South Korea and the west and the wish to create an outside enemy will keep the relations of North Korea with the rest of the world tensed and difficult. War will be a step to far and thus unlikely but continueing tensions and non-cooperation will be very likely on the short term.

South Korea

The situation in South Korea has improved over the last year. The economy is showing some improvement as the exports increased, currency stability has returned, debts been rolled over, the number of bank-rupties have stabilised and the closure of the smallest and weakest of the large conglomerates, Cheabols, and the restructuring of the large Cheabols have been implemented.

Economically South Korea has achieved a big improvement but the problems with North Korea seems to have become larger and more dangerous as the problems in North Korea have become worser. South Korea must remain alert against Northern incursions of intelligence units and mini-submarines and since recently larger operations, like the naval skirmishes in the Yellow sea, which should test the Southern’s defence capabilities and willingness and will increase the tensions between the two neighbours. This, as mentioned before in the part of North Korea, to create a foreign threat to avert the people from the internal problems and extort additional means, support, from the South and the west. The situation will probably not escalate as the Northern position is much to weak to succesfully launch and survive an assault on South Korea. Even as a option of last resort it is very unlikely, they are simply to weak militarily and economically to execute and sustain a long term operation.

Tension, bad relations and probably an increase of tensions and small scale harassments will be very likely on the short term but only with the goal to receive additional support. A war will be avoided as this would mean the end of the regime in North Korea.

The Philippines

The situation in the Philippines is more complicated. The Philipinnes had the advantage not to be a direct casualty of the 1997 Asian crisis as they were less involved in the Asian economic miracle. But the Philippines have got their own share of problems beside the negative fall out the Asian crisis which never the less had a large impact on the currency and the stock market.

The economic development of the Philippines have been slow and several times delayed by external and internal problems. The external problems have been and are a lack of trust in the Philippine economy and capabilities. The internal problems are about the changes of successive more or less weak, or better indecisive, governments, the autonomy and independence movements, the still active communist party and the inertia, lack in support, of entrepreneurship in the country.

The economy of the Philippines have shown in 1999 some improvement. Internal induced growth, better government support and policy and a slow return of foreign investment in the Philippines have been the main causes of the growth. This trend is most likely to continue in the coming years as the whole region is returning to their former strength.

China

The largest and most populous country of the region has not been hit that dramatically as the majority of the other countries in the region. The absence of large sums of short term foreign debt, the controlled currency and no large scale property speculation saved China from the economic collaps in 1997/98.

The consequences of the Asian crisis were for China in the first place indirect as the foreign investments into the region, including China, decreased and through the worsening of the Chinese market position as the other countries products became cheaper.

The medium to long term effects of the crisis are much worser. The consequences will be negative economically and politically, internal and external. Economically the lower investments into China will endanger the development plans of the Chinese government. They need at least an average annual growth of 8 % to absorb the rural population into the urban areas, to provide some kind of work and improve the industrial and financial institutional base. The lack of investments and the lower growth figures will make the inefficiencies, or better the close to bankrupt position, of the majority of the Chinese companies and the financial system of China more visible. The consequences of the close to bankrupt companies will mean an increasing number of lay offs as it will become increasingly difficult to continue financing loss making companies.

The economic problems will thus increase in the future as the foreign support will not make good the many structural deficiencies in the Chinese economy. A short and small improvement of the growth figures might be possible as the region will improve but a downturn trend will be unavoidable if another investment boom will take to long to return and if the government does not implement a total overhaul of the economy.

Politically the forecasts are also negative. Internal problems are bound to increase as the government cannot satisfy the demands of the population to at least deliver a chance for survival, with other words a job, food and living quarters. Especially in the interior provinces the economic situation is deplorable. The coastal regions offer some better circumstances with a few of the better government owned companies, the joint ventures, the foreign production facilities and the little group of small entrepreneurs but again not enough to satisfy all and certainly not the whole country. These social-economic problems will lead to unrest and consequently to an even worser economic performance.

The weakened government will be more endangered to actions of the autonomy/independence movements in Tibet and Xinjiang provinces. They will use the problems of the government to their benefit. With the use of force the Chinese government might be able to suppress the movements on the short term but they cannot afford it financially to continue it on the long term and violence and social unrest are the perfect pre-conditions to scare off foreign investors and destroy economic growth.

The external political problems will also increase as all neighbouring countries will use the Chinese weakness to improve their position in the territorial differences they might have with China. You could think about, the Paracel islands, the Spratly Island group and ofcourse Taiwan.

A good example of the weakness and the coming political problems for China are the reactions on the recent Taiwanese statements of treating the two as essentially two countries, a covered explanation that the one China idea is dead, did not lead to the more usual aggressive reactions of China. As China is at the moment and in the next 10 to 15 years economically, politically and militarily not able to force their will on Taiwan. They can use some diplomatic pressure, their seat in the security council and big statements but that is essentially all.

China is a promising country but many changes need to be implemented and ifs overcome to become prosperous. It will take at least one or two decades before China will be in the position they want to be in: superpower status. During the Asian booming years and the days of double digit growth the goal seemed to be close. Accordingly was the behaviour of China. It considered itself at least as a large power that could dominate its neighbours. The Asian crisis made the problems of China visible and the world and probably the Chinese leadership aware of its weakness.

Taiwan

Taiwan has not been particular hard hit by the Asian economic crisis. The stock market dropped but it had not any large impact on the economy. The recent earthquake will have a much larger impact on the performance of the economy.

Taiwan’s economy remains one of the better performing economies of the world and this will continue to be the fact. The earthquake will cause some short term problems as parts of the infra-structure and living areas have been severely hit but this can be solved within two to three years. The economic damage can be limited if the power supply to the all important tech-industry can be repaired as fast as possible. Taiwan’s silicon valley has received no large damage and is only hampered by the irregular power supply. Taiwan’s problems are politically.

The status of Taiwan is uncertain. As long as Taiwan considered itself as part of China and claimed the leadership, the other side was considered the usurper of power, the one China idea remained valid. China’s feelings about Taiwan are identical, Taiwan is the renegade province. This started to change as Taiwan became economic succesfull and afterwards became a democratic country. Taiwan has developed itself into a country with all necessary qualities which are usually associated with an independent state. The only missing aspect has been a declaration independency and ofcourse international recognition.

Every attempt or even intention to declare themselve independent was met by China with threats that they would use all measures available to stop it. They even stated that they would forcefully bring back Taiwan into China if this would prove to be necessary. Even other countries have been punished by China if they would allow Taiwan to open an embassy or have diplomatic relations with Taiwan.

Until the Asian crisis the Chinese threats and the uncertainty in the Taiwanese population have Taiwan refrained from declaring independency. The changed perceptions of the Taiwanese population, the economical and political problems of China and a reassessment of the Chinese military capabilties changed this attitude.

In a speech the Taiwanese president declared that it would be best to treat Taiwan and China as two seperate entities. This covered declaration of independency has been the first step to formal independency. A test balloon to see how China and the world would react. China’s reactions were relativily mild as Taiwan took the opportunity at a time were China is clearly economically and militarily inferior to Taiwan. It is a window of opportunity for Taiwan, China temporarily weakened and still far away from being a large power.

Taiwan is one of the economically better performing countries and they wil certainly benefit from the re-emergence of economic growth in the Asian area. Politically there is a problem with China. But it is now the right time for Taiwan to change the situation as they did. China could overreact and try to invade Taiwan or blockade the harbours. The first option is impossible because the Chinese armed forces simply lack the resources to execute such an operation. A naval blockade will also prove to be very difficult as the Chinese navy is not the most advanced, except the Sovremenny-class destroyer and the Kilo type 877 and type 636 submarines but with which they have some difficulties to operate, and are in essence inferior to the Taiwanese navy. And this could start a much more dangerous development, what if the Taiwanese navy would blockade Hong Kong, Shanghai and some other harbours. The Chinese economy would be very much in distress. War is at the moment no option for China and therefore very unlikely.

The Southern Asian Pacific area

The countries in the Asian South Pacific area were the most hit by the Asian economic crisis of 1997. Not only the stock markets plummeted but also the property market, the currency, the production and all other dreams about the much clamoured superior Asian way to become a developed nation.

Most of the countries, except Indonesia, could economically recover since the crisis but they are still far away from the pre-1997 days of wealth. All had their own way to recovery and in short a combination of time, prudent government policy and spending, roll over of debts and IMF support packages delivered a return to growth.

Vietnam

Vietnam did receive only limited damage from the Asian financial crisis. Vietnam possessed relatively little short term debt, no large property speculation and a small an underdeveloped stock market. The consequences of the crisis have been indirect as foreign investors lost the trust in the Asian economies.

The slack in foreign investments and probably more importantly the slow and hesitant policy of the government to initiate further reforms to stimulate the economy have suppressed economic growth. The government remains the largest obstacle to an increased development of the economy and the society in general. The fear to loose control makes the government very carefull and hesitant.

The Vietnamese economy has improved a little since the crisis but cannot use its full potential because of the suppressive and controlling regulations and the government. Until the government participates actively in the restructuring of the economy, growth and progress will not be achieved.

Thailand

The country which has been hit first by the Asian crisis was Thailand. The mismanagement and the bad sides of the Asian tiger economies became first visible in Thailand. All dreams of a quick and flawless development were destroyed within a couple of days.

The currency, the stock and property markets and the industrial production collapsed because of the financial mismanagement and the long overestimated economic capabilities of Thailand.

Saving programs, IMF packages, proper government policies and a partly restructured economy have delivered a better environment. Growth has returned to Thailand and promisses to continue in the coming years.

The worsest problems of and in Thailand are over and/or solved but a return to the days of abundance of before 1997 will take some more time. But a same kind of abundance will never return as the financial regulations have been improved and the investors will be more carefull where and when to invest.

Malaysia

Malaysia has been very hard hit by the Asian economic crisis. The currency, stock and property markets collapsed because the same ills as in the majority of other Asain tiger existed in Malaysia.

The reaction to the crisis has been however different than of the other countries. Malaysia has been the main player/backer of the superior Asian way development idea and suspected a western inspired plot behind the Asian crisis. Therefore Malaysia rejected any western or IMF conditions and advice to solve the crisis.

Malaysia introduced a controlled currency market to stabilise the currency and cut back the many very ambitious, but also very doubtfull, development programs. As the country calmed down and the region started to stabilise some growth started to return.

Malaysia is out of the worsest problems and will continue to grow in the future. Especially now the whole region is improving. The IMF has because of the Malaysian success loosened its aversion to money controls and would like to cooperate with Malaysia to stimulate further improvement and economic growth.

Singapore

Singapore is one of the most developed nations in the region. The consequences of the Asian economic crisis have been limited in Singapore. As the stock market lost much of its value and the economic growth was minimalized the currency remained stable.

The stringent Singaporean regulations and the advanced economic structure saved Singapore from the disasters occurred in large parts of Asia. Economic growth returned therefore very quickly as the region showed the first signs of recovery. Singapore will profit from every further improvement in the region. It will receive a little negative impact and some additional refugees out of Indonesia as the problems seem to get there larger by the day but the overall situation will not be damaged by it. As Indonesia is a total different ball game as it is and was not very integrated in Asian development process.

Indonesia

The country which have been hit the most by the Asian crisis, economically and politically, is Indonesia. All the problems which existed in the other Asian countries like the lack of regulations and financial controls, the ill/wrong directed investments, an underdeveloped economic structure and a culture of nepotism can be multiplied for Indonesia and add to that the political problems of aggressive autonomy/independent movements, doubtfull government policies and a centralised, militarised and ineffective government structure and you have a description of Indonesia.

Nearly everything in Indonesia collapsed because of the economic crisis. The stock market, the currency, the production, business activities and partly the government all lost their value or functionality. Despite the IMF advice and support packages the free fall of Indonesia could not be stopped. The economic downturn could be delayed because of the international support but the political problems pushed the economy further down hill. The Indonesian economy is in a depression, the country is falling apart and violence is set to increase.

The Indonesian economy is in very bad shape as large parts were political guided, overdebted and absolutely unfit to operate and compete on the world market. The economy has experienced negative growth since the Asian crisis started. The shrinking of the economy will continue for some years as a very large number of problems have to be solved, economical and political, before growth will return.

Beside the rotten economic structure there are at least two other problems which undermines the stability of the country which in turn undermines the economy of the country. The internal political structure is very weak as it depends on a small poltical elite and the military for its survival. Both are not very popular with the Indonesian and Javanese population as became clear as a law proposal to increase the power of the military resulted in agressive demonstations of students who dislike any increase of power to the ruling elites or better the military. Indonesia’s other large problem are the several movements in this island and population rich country which demand some kind of autonomy or even independence from the central government in Jakarta.

There are at least four regions in which the differences between the central government and the local people, movements, have escalated beyond the possibility of reaching a political compromise. And this could be only the beginning as more peoples on the island and people rich country get ever more dissatisfied with the government in Jakarta. If Indonesia does not get its act together and offers within the next two years an satisfactorily solution, e.g. an economic recovery and a sharing of power, to the people living outside Java the country could eventually fall apart.

The four regions which are the most active and most suppressed by the government are Aceh on northern Sumatra, east Timor, Irian Jaya and the Moluka islands. The situation in the last two, Irian Jaya and the Molukas, is relatively calm in comparison to Aceh and east Timor. The people in Irian Jaya support the independent movement OPM and they are moderately active in their actions against the Indonesian government. The differences on the Molukas between the muslim Indonesian, Javanese, immigrants and the original christian population have calmed down but the Moluka people support the autonomy/independent movements on the islands. The comprehensive suppression system, read the army, could until now keep the situation under control. Limit the actions of the OPM on Irian Jaya and refrain the peoples on the Molukas from killing eachother.

The referendum on east Timor, something the other regions would like to have too, has been a kind of cease fire agreement which kept off the independent movements from any serious actions and confrontations. The outcome of the referendum and the subsequent reaction of the Indonesian government and especially the army will however intensify the actions of the several independent movements on Irian Jaya and on the Molukas. The forced mass evacuations and suppressions after the referendum will not scare off the people but will on the contrary only increase the willingness and actions of the independent movements. As living under Indonesian government is living insecure and suppressed by the army and Javanese policy.

The situation in Aceh has been much more violent. As Aceh is economically very important to Indonesia, 30 % of Indonesia’s oil poduction comes from Aceh, they want to keep the region within Indonesia. They can not economically afford it to loose this area and they will do a lot to keep this region under control. The government is stating that they will fight till the end, if necessary, but so does the independent movement Aceh Merdaka, free Aceh.

The Aceh Merdaka is more active than ever before. Aceh Merdaka is increasing the number of assaults against Indonesian installations and security units. And the movement has received additional arms and more importantly several hundred, at least 600, fighters who returned to the region after having been trained in Libya. The quality and quantity of the Aceh Merdaka is improving and this will have an effect on the fighting against the Indonesian security forces.

As a result even the hard suppression methods and the renewed introduction of special forces of the Kopassus into the region could not turn the tide. Indonesia is having more difficulties to control the region and is set to lose more men than ever before. The Indonesian security forces are less effective in suppressing the independence movements because they have to fight more or less a fairer war than in the days of the Suharto regime. A return to the old methods of torturing and random killing would be difficult as this would meet a lot of international resistance and eventually the recognition for the people of Aceh that they should be independent.

The Indonesian government is now pursueing a twin track strategy in the Aceh region. Beside the actions of the security forces the Indonesian government in the person of general Wiranto has recently made some pacifying gestures towards the Aceh Merdaka.

The twin track strategy is in the mean time a clear sign of the willingness of the Indonesian government to compromise and a wish to end the violence. The time for compromises is however over as Aceh wants to be independent. They are much to radicalised to compromise and the Aceh Merdaka will probably consider any gesture of the government as a sign of weakness or a trick. Offering something now to suppress them some time in the future if the position and chances have improved for the security forces.

Finally east Timor, the referendum about the future of the region which promised to solve the tensions in this part of Indonesia has turned out to be a farce. The outcome of the referendum has been a disappointment to Indonesia. The population voted for independence, Indonesia accepted the result and started to withdraw but the pro-Indonesian militias started, with support of the Indonesian armed forces, to spread terror and forced the majority of the population to run for their lives. As the population dwindled and if Indonesia can keep the refugees in Indonesian controlled west Timor then the majority who voted in favor for independence will become less and less.

The arrival of the UN authorised force INTERFET, Intervention Force East Timor, under Australian command could initially only restore order in and around the capital Dili. Only after the hand over of power from the Indonesian army they can spread out over the whole region, country. As fast as possible they will try to restore order, demilitarise/disarm the pro-Indonesian militias, feed the refugees and install some kind of civilian government.

The willingness of Interfet to restore order became clear by the arrest of a leader of one of the largest and most feared pro-Indonesian militia Aittarak, who wanted to start negotiations with Interfet about the future of the region after the Indonesian withdrawal.

Aittarak and the other militias possibly want a new referendum under more favorable terms now the majority of the east Timorese population has fled to the mountains or west Timor or have died by the terror of the militias. Or if that is not possible a partition of east Timor into a pro Indonesia part and an independent part.

The threat of a guerilla war between Interfet and the pro-Indonesian militias will be unlikely and if it happens it will be short and not very succesfull. They are to small, to weak and lack the necessary internal and external support to make a large impact. And any actions of special units of the Kopassus will also be unsuccesfull and rather dangerous. If they would be apprehended by the Interfet Indonesia would be in big trouble. Indonesia is thereby hardly in the position, politically and economically, to support a guerilla war and cannot afford to many additional problems, costs and embarassments.

Indonesia will not receive any credit from the people living in east Timor, even not from the pro-Indonesian groups in the future. The Indonesian army has taken, during their withdrawal, everything they could carry with them and burned and destroyed everything they had to leave behind. East Timor, not the most developed places in Indonesia has been thrown back to the stone age. Everything, even the majority of the houses, need to be rebuilded to become a more or less civilised and urban society again.

The idea behind the combination of terror and the total deconstruction and destruction of everything valuable of a region is that it should scare off potential other regions and people in Indonesia from demanding secession from Indonesia. This policy in east Timor should be a warning sign to others but most likely the opposite will happen. The autonomy and/or independent movements will become even more determined in their struggle to secede. Everything less then independency will be unacceptable and the movements will be very attentive to every move of the Indonesian armed forces. Another campaign like the one in east Timor will receive more opposition and a agressive reaction from independent movements in Irian Jaya, Moluka islands and in Aceh. Any compromise like now desired in Aceh will be very unattractive as nobody would cooperate with somebody that unreliable, treacherous and agressive as the Indonesian military and its rather unpowerfull political masters.

The internal problems of Indonesia with a weak government, its doubtfull economic policy, the accumulation of power in Jakarta and in the hands of the military and the agressive and violent policy of Indonesia in the troubled regions will scare off foreign investors and destroy any chance on an economic improvement in Indonesia. Indonesia has a long way to go to achieve stability and economic growth and any mistake will be paid for dearly by Jakarta.

September 1999

September 1999

A note on business management

Every manager which is busy with running a company has to do his or her routine tasks and has to solve several problems and sometimes more importantly problems still to come. Managing is dealing with the present and anticipating on the future at least if you are Schumpeter’s kind of entrepreneur business man or woman.

To assist you in succesfully executing the manager’s job here some ideas and inroads which could be supportive to your company.

Contrary to common belief running a company in booming times is just as difficult, sometimes even more difficult, than in depressing times and markets. Where as in a depression the most important goal is to improve the revenues and cut costs in a booming period it will be maintaining the growth. As most people and companies experienced coming somewhere, like be number one in your sector, is relatively easy but stay up there and still improve is the difficult part of the game.

Managing success is the name of the game and it will demand all skills available to do so. All parts of the company have to be brought in line with this goal and participate to maintain and improve the numbers and products or services which are responsible for the success.

Managing success

A large number of companies, especially in the tech sector, have become very succesful. From virtually nothing they moved themselves into the top league of the business community. Large revenues, high growth and a seemingless never ending demand created companies with a lagging infra-structure which is threatening future growth and the health of the company. But not only the upstarts have this problem also the mid and large size corporations will and have experienced the same kind of problems. Namely inadequate company structures and hierarchies have and will undermine new and very often profitable operations which have been initiated to keep the holding company in the group of high performance companies.

The prime responsible for the position of the company is the management. They have to maintain the current position, seizing opportunities and avoid threats which may damage the performance of the company. A good strategy and a superior implementation of the, tactical, workplan should make it possible to achieve the goals which are stated in the business forecasts.

There are four areas which are very important and necessary to manage success. The management team has to carefully adress or bring the next four important areas in order to avoid the chaos of an inadequate business structure. The areas responsible for the growth and stability of the company are people, systems and organisation, products and services and control, finances.

You can read more about business management, productmanagement, communications and procurement in our reports from May 1998, September 1998 and November 1998.

People

The management of people have become a major issue in booming industries and the very often connected tight labor markets. Without the right people it will prove to be very difficult to maintain a given situation, not to speak about any improvement.

The value of the human resources department has become more important because the retention and the attraction of the right people has become increasingly difficult. It is not enough to offer an attractive pay package and perks but other elements like the working environment, development opportunities and the corporate culture are just as important than the bank account.

Not only the all important creative research, development and design people should be included in the people management but also the sales, production and supportive workforce should be included. The second group of workers might be a little easier to replace but a proper work environment and the corporate identity can never be established if the company is a two track enterprise.

A correct people management is the first condition to maintain and improve the position of the company. And after the good payment package, the above mentioned corporate culture, development opportunities and working environment will stimulate the people to do their utmost to protect and support the company.

Corporate culture

A good corporate culture is not only beneficial in the sales and marketing but it will bind the people, the workforce, to the company. An intimate bound has to be created between the company and its people. They all need and want to belong to belong to the company and need to be proud on their company. To be proud they have to know and be able to identify themselves with the mission, doctrine, of the company. For example we make live easier for the people and we connect the world kind of fundamental ideas.

Development opportunities

The development opportunities will keep the workforce sharp, up to date and committed to the company. The development opportunities do not only mean promotion in the hierarchy but also opportunities to increase their knowledge and skills. This can be done by learning and exchange programmes but also by sabbaticals. As better educated and open minded people will be more flexible and useable but also more willing to explore new ground and opportunities and go the extra mile if it is beneficial for the company.

Working environment

A good working environment is responsible for that the people working in a company get the feel good feeling. If they feel comfortable they will be working harder, will make lesser mistakes and will report the rare mistakes and other possible problems easier and faster so that they can be corrected. A proper working environment can be created by a work or better people friendly workplace, good relations between the people working together to stimulate cooperation and discussion and finally to recognize and reward the achievements of the people working for the company.

Systems and organisation

Systems and organisation in a company are the elements responsible for the execution and the infra-structure. All organisations need good equipment and a proper infra-structure to stay competitive and profitable. If the equipment is not attractive and uncapable the workforce will get dissatisfied as they will loose the confidence in the company and the products they develop / manufacture / sell and it will undermine the company as the current product(s) will very soon be outdated and unsaleable. If the infra-structure of a company is inflexible and rigid it will undermine the adaptablility of the company to use opportunities, for example new products or production methods, and therefore it will raise costs and limit profits on the medium to long term.

A large number of companies have been drawn into the trap of outdated systems and an outmoded infra-structure. The success a company had with a given product or service could have made the management very averse of any change as this would increase the costs and decrease the profits on the short time, change the comfortable structure they know and like and everything is, in their perception, so nice and good.

To succesfully manage a company it demands that the management is open to new ideas and stimulates change to avoid the inertia of relying to much upon a given situation. Opportunities into new products, production methods and advanced research, control and office equipment should be explored and if useful be implemented to stay ahead of the competition.

Organisation

The infra-structure should be open to change. Rigid hierarchies and large complex structures should be avoided as new products and technologies demand a different approach than the old style factories. Small modular business units should be created with their own management structure and responsibilities to stimulate development, optimise production, improve customer relations, control costs, and nurture the internal relations to avoid the ivory tower syndrome of the management.

An additional advantage of a flexible and open organisation is that new ideas will be embraced more easily and effectivily. New or modified products and production methods can be brought forward and by a simulation tested on success or applicability.

The benefits of a proper infra-structure can be summarized as that it creates a good working environment, improves the communication between the workforce and the several departments in a company, stimulates new ideas and optimises development, production and sales.

Systems

The above mentioned open and flexible organisation is a pre-condition to the use of the most advanced and cost effective sytems available. The systems are necessary to improve research, production and the sales and marketing activities. Without being consequently at the forefront of development, outdated equipment will increase costs, minimize profits, destroy opportunities which could be realised and it dispels the workforce and more importantly in the end the customers. And it will be much more difficult to make up a structural shortcoming then continue to swim in the main stream.

The advantages of an advanced systems company are that the systems, office, reseach and production equipment, are needed to keep the work force up to date, interested in the company and the products, stimulate new developments, improve the relations in a company and communication with the customers and ofcourse have advanced cost effective production facilities.

Products and services

The need to have an attractive product package, might it been an actual product or a service rendered, and an effective services department is essential for a company to beat the competition. A lapse in one of both or in both elements will have a dramatic effect on the bottom line.

Product management

The product package should be regularly evaluated, updated and renewed, if necessary into new sectors, to remain a competitive company. A system of product cycles should be introduced to forego any attempt to be sticked to certain product. The product should not outlive its useability or desireability. Improved or new products should be introduced timely to keep the customer, market, satisfied and to remain, as a company, competitive.

Customer relations

In a customer focused market it is of the utmost importance to keep the customer satisfied, the customer is king and should be treated accordingly. The after sales service should belong to the important departments of a company. The services department will be in close contact with the customers and they can find out what is wanted and expected now and in the future. This knowledge is very important to the present product package but even more important to future developments. The efficacy of the services department is responsible for the return of the customer if a new acquisition will have to be made. Consequently complaints should be dealt with immediately, or at least in the shortest possible time, as most customers rely on the products to work. If a customer is satisfied he will be more likely to return.

Conclusion

An attractive product package and an efficient services department, customer relations, are the key, at least external, to remain a succesful company. As the customer will hold those two responsible for their satisfaction and this will translate to the bottom line of the company.

Control

The last area with should be handled with great care is control, or better the financial aspects, of the company. The need to properly manage people, update systems and organisation and innovate products and services should be guided by the financial sense of every important decision. But always remember to much control, risk aversion, is as worse as to little control, a va banque game. A balanced company is using financial control as a supportive instrument not to simply killing off new developments.

A well managed company with several business units which operate semi-autonomous under their own management have the option to explore opportunities with new products and production methods. The semi-independent unit can open up new markets and achieve results beneficial to the whole group. The holding company in turn has to implement an advanced financial control system for all units operating under their aegis to exploit opportunities and avoid threats, or simpler stated to control costs and maximise profits.

The company should also implement a company wide bookkeeping, enterprise resource planning, ERP, system. The business units should have their own ERP system but this should be coupled to the main system of the holding company, also semi-integrated into the group just like the management of the business unit.

An unified financial control system does not only demand the same kind and level of hardware and software but also identical ratio’s. The ratio’s should be tailored to the specific situation of the company. Derivatives of the Net Present Value, Return on Investment, Cost-Benefit, Cost-Performance and Activity Based Costing ratio’s should be used to create a common understanding within the group. Decisions can be made afterwards based on not only on strategic policy but also on fundamental research thus easier acceptable and supportable for all concerning parties.

An unified control system will give each unit the opportunity to work with their own budget and at the same time receive financial support from the holding company. As the holding company is at all times fully aware of the activities and possible shortcomings of the business units. The holding company is also able to collect the necessary information to properly run the company and inform the public and the shareholders about the present situation.

Finally with an unified control system all can be treated equally, cost-benefits can be estimated and can be kept under control and mutual experiences can be shared. If an unit experiences some financial difficulties with a certain project it can be compared with other projects and the correct action can be undertaken.

The main function of the holding company will be financial control to assure that projects succeed and that the same standards and methods will be used. If they succeed to implement this kind of system progress and improved business results will be achieveable.

August 1999

August 1999

German defence revisited

German’s road to change

Germany has expercienced a number of difficulties in recent times. The reunification, the higher taxes, the lagging economy in Germany and in east Germany in particular and the economic crisis in Asia, Russia and to a lesser extent South America have created a set of economical problems which have not find a solution.

The CDU-CSU government of the long served Bundeskanzler dr. Helmut Kohl has, because of the economic problems, been elected out of office by the social-democratic – greens coalition of Gerhard Schroder. The economic policy and proposals of the opponents were not really different but the new elan of the social-democrats proved to be more convincing than the CDU-CSU appearance.

The policy which should bring some improvement to the economy is about stimulating the economy by an attempt to support and encourage new industries and to make the socal-economic fabric more flexible. Both are however to little and to late. And by limiting government expenses by cutting costs by several departments. The already badly hit defence budget, which have already been cut in half since the reunification, should deliver another 3 billion DM in cuts.

German’s defence posture is already undermined and hardly prepared to do its job. The question is now are further cuts possible without any change, qualitative and quantitative, of the defence forces structure? And is it possible with lesser resources to fulfil the commitments which have been accepted by the government like the contributions towards SFOR and KFOR beside the protection of Germany?

Can and/or should the German defence forces go on in the same structure with the same tasks at an even lower defence budget or are dramatic changes necessary to meet the demands of the government and the society

Security in and defence tasks of Germany

The security perception of Germany has experienced a large change to the good as the cold war had ended and a wave of democracy ran through the world. This feeling of optimism, peace and progress did not last for very long as reality returned to the heads of state and later to the people that there are still some not so pleasant people around.

The geo-strategic situation improved as the political-ideological contradiction between the east and the west disappeared. The threat out of the former Soviet Union disappeared and subsequently it became even less dangerous because of the economic problems in Russia and in most of the other new countries of the former Soviet Union.

Instead of the Soviet menace many new nationalistic-religious problems emerged which did and do not pose a same kind of threat. One large and more or less predictable danger was replaced by several small ones which are unpredictable and difficult to control but none of them is posing a direct threat to the security of Germany or for Europe for that matter. The new countries in the territory of the former Soviet Union, the Balkan, the Middle East and muslim fundamentalistic organisations can not become a dangerous threat in the coming decade. They themselves could be a threat to eachother but very unlikely outside their area. They simply will not have the abilities on the short term to become dangerous.

The threat is indirect as refugees, economic problems and an ethical component could eventually undermine European society. The defence forces of Germany and the other European, NATO, countries do not face a conventional threat to their security. The threat will be indirect with possibly some terrorist activities but even these will be less likely as most terrorist organisations will loose their state sponsors.

There will be also no direct threats to Germany. The German defence forces will however be stretched to the limit with the participation in UN peace keeping and enforcing operations and occasional relief operations.

The peace keeping and enforcing operations will be most likely limited to Europe and possibly, if the Israeli government would issue the request, a peace keeping operation on the Golan heights. All other UN operations around the world which need the support of the defence forces will not receive support from Germany and essentially from the whole of Europe. As the majority of European nations consider Africa and Asia the responsibility of the regional organisations like the OAU and ARF. There are exceptions possible in some situations but the current trend is focused on Europe.

The relief operations after for example a natural disaster will on the other hand continue to receive support from Germany, e.g. the transport capability from the defence forces.

Concluding, Europe have become, with the exception of the Balkans and especially the territory of former Yugoslavia, saver then ever before. The further integration of Europe and continued active involvement in organisations like the NATO will keep the situation stable for at least the next decade. As Europe’s situation is improving all possible opponents, for example an emerged Russia or a possible alliance of Islam fundamentalistic north African states, will in this same time span not be able to become a major threat to Europe.

A new defence structure

The German defence forces are because of the consecutive cuts in the defence budget and the increased demands to participate in UN peace keeping / enforcing operations like SFOR and KFOR stretched to the limits of their abilities. The budget cuts and the changed security environment demands a change of the forces structure. The absence of a real threat gives Germany the opportunity to change this structure.

The German political leadership, the government and the opposition, is fully aware of the problems which have hit the defence ministry. It is necessary to make some decisions but the former and current government prefer to wait and hope time will bring a solution. The Wehrstrukturkommission, defence structure committee, which have been initiated by the defence minister Rudolf Scharping is a same kind of delay mechanism. The committee should look at the current situation and put forward some new ideas, proposals, to solve the crisis like situation. The committee will use a lot of time and at the end will, most likely, come with some half hearthed proposals aimed at maintaining the status quo.

The situation demands some decisions of the government. The abilities of the defence forces will be downgraded if the current trend of cuts and increased reponsibilities continue. Even if further cuts could be avoided it would be extremely difficult to upheld the fighting power of the German armed forces at the current level as a 5 to 10 percent increase of the defence expenditures wil be necessary to maintain a modern updated armed forces.

A rethinking of the position and the structure of the armed forces in Germany is necessary. The current structure of conscription, main defence forces and crisis reaction forces will not be able to live up the expectancies and demands of the government and society. The conscription system will get unfair if the number of forces are decreased and conscripts can not be forced to serve abroad on UN missions. And the division in main and crisis reaction forces will create a two class army with state of the art equipment and motivated soldiers in the crisis reaction forces and outdated equipment and more or less dissatisfied people in the main defence forces.

It will not be enough to simply scrap some barracks, brigades, units, wings, squadrons or ships or eliminate some tasks to achieve a reduction and meet the financial targets set out by the finance ministry. This will degrade and even further overstretch the armed forces.

A new and better approach is necessary to keep the forces up to date and capable of fulfilling the tasks they are expected to do in the current defence budget or at a slightly lower budget.

An option for the defence forces

The new approach is based on an armed forces structure which is modern and capable to the defend the interests of the country and participate in several UN operations. This demands up to date equipment, enough forces, men, to do the job and additional resources, equipment and reserves, to participate on every eventuality.

The German armed forces should be based on a professional base of officers, NCO’s and soldiers on medium to long term contracts. In this structure the conscription will be abolished and replaced by a system of reserve forces and possibly a kind of militia structure.

The conscription system is a somewhat outdated idea with the goal to have a large force and in German’s case to involve the society in the armed forces. The reduction in manpower and the shortening of the time served as a conscript will make the number who actually fulfil their conscription lower and more unfair as the number who do not need to serve will get higher. Only on the medium to long term this inequality will change as the demographics lowers the number of conscription eligible to a fairer number.

The number of conscious objectors have been growing in the last decade and this made the equation between the people who have to do their service and the ones who were excluded artificially lower and more bearable and it delivered a large pool for the civil service, Zivil Dienst, who do and did their service instead of being in the armed forces supporting the Red Cross, homes for the elderly, hospitals and so on.

If the conscription would be abolished the civil service will be the most hit as the people working here will be difficult if not impossible to replace. To make up this shortfall the militia system, as we propose, could be the savour of this much needed service for the society and even maintain the so much appreciated close relations with the society.

The new armed forces would also consist of a core of full time professional military, an active reserve force and a none to little active militia force. The armed forces could remain in this structure up to date in equipment, have enough resources to do their job properly and the defence budget could remain on the current level or even accept a small cut and maintain their fighting power which is impossible in the current situation.

The professional armed forces

The military core of the armed forces would consist out of a professional force who are responsible for the protection of Germany’s interests and are the first to call for. They will be the specialists, well armed, trained and all on the same advanced level. Prepared for conventional warfare, large scale multi-national operations, emergencies and for UN operations.

Beside the normal military functions a professional armed forces would have to do, a small part of the professional forces will be spread around the country in trainingcentres to train the militia force. The courses will be held in cycles of about three months in daytime courses with a couple of exercises to educate the militia force the basics of the military trade, social values and to integrate the armed forces in the society.

You would need a professional force of around 260.000 men to fulfil the same tasks as is now being done by the Bundeswehr. Around 160.000 for the army, 70.000-72.000 for the air force and 28.000 for the navy.

With this number of personnel the armed forces could fulfil all the tasks they do now. Especially the air force and navy will benefit from this change as their capabilities will improve through the professionalisation. The reserve forces of the air force and navy will be mainly support and security units beside a small number of civilian pilots, technicians and shipcrew.

The army will need to change the most. The current structure of forces will remain more or less the same and they will be able to continue to participate in the current multi-national units /corps system. The only difference will be that one brigade of an armoured or mechanized division, except some cadre forces, and some support units will be manned by reserve forces. The airborne division will become an all professional unit. The use of reservists in combat units will have a minimal effect on the fighting capabilities of the army as an active reserve force can be brought up to standard within a month. And as the deployment of heavy army units will take longer as airborne units, naval forces and especially air force units and the warning times have increased the use of reserve forces will not degrade the army.

The reserve forces

The professional armed forces would need to be supported by an active reserve force. Where ever possible civilian skills should be used in a reserve force to even further increase the professionalability of the reserve forces. The reserve forces should support the professional forces.

The reserve forces will consist out of former professional soldiers, NCO’s and officers and well motivated and interested civilians who like to serve the country. Beside the interest of being a part time military man or woman a small financial compensation an proper insurance arrangements should be available.

The reserve forces would get an additional training, only if they have not been part of the professional forces, of about three months beside the ground skills learned in the militia training and the reservists will be educated and trained in for example 3 evenings a month, 6 saturdays a year, 4 weekends a year and one exercise of a week in a year. With this training schedule they would be trained at an acceptable level and capable to operate advanced equipment and in large scale operations in and with support of the professional forces.

As an additional attraction and to keep the reserve forces sharp they could be available for UN operations and emergencies. Every four years they could be send on a UN operation for three to six months. This would be benificial to their military development as it is an very good opportunity to train and learn operating in multi-national environment under real circumstances. And it should be possible without to much problems for their normal civilian lives.

The reserve forces should total about 90.000 men; 60.000 for the army, 25.000 for the air force and 5.000 for the navy. With this number of additional forces the armed forces are capable to fulfil all missions demanded. As there will be at least 5.600 reservist available for UN operations at all times without putting to much pressure on the reserve force. A combined force of professsionals and reservists will allow Germany the use its capabilities and resources most advantageous in general and in UN operations.

The militia

A militia force is offering the best way, even before a conscription army, in creating an armed forces close to the society. The militia is the beginning of all defence, especially in the defence of the nation, as they will form the back bone and the greatest possible nuisance to any invader. Even if the conventional value of a militia force is limited the attritional and psychological value is even larger. As nearly all able people in the society will be part of a militia army and therefore more likely to be committed to the country and more averse against an invasion.

The militia force, or kind of as the education and training course will be minimized to the absolute minimum, will also allow the possibility to save the Zivildienst, civil service. As all able young people, male and female, will join the militia after high school / college for three months there will be a very large number people of which a large number do not like to do their military service they have the alternative to join the Zivildienst.

An additional advantage of the militia system will be that there will be the need for a large number of trainingcentres. These will be spread geographically around the country so that the militia training can be a daytime course and no large barrack complexes are necessary. There only will be a need for a number of classrooms, a gunrange and a small exercise area. All states of Germany will be incooperated in this plan so a fair sharing of work is possible. Finally those small complexes will be needed by the military for 6 to 9 months of the year the remaining 3 to 6 months can be used to give additional education, business focussed, to the unemployed and young people who do not go to any further education and do not have a Lehrstelle, jobtraining place, at a company.

The education of the militia force will be done by the professional armed forces. Hereby they can remain in contact with the society and attract people to become a professional soldier or to become a member of the reserve forces.

The militia training course should be as short as possible but long enough to learn the basic skills of a soldier. Beside the formal education about the military, organisation, hierarchy, weapon handling, small unit tactics, etc. attention should be paid to citizenship, democracy, social values and mutual respect. The militia course should not be about to much drill and learning by gaming should be very important.

In about three months it should be possible to learn the above mentioned basic skills. They will not be able to operate advanced weapon systems but the most common infantry weapons, light mortars, light AT missiles and Stinger type AA missiles should be achieveable within this time span. Large scale combined arms operations will also not be possible to learn and to train but security, harassing and small unit operations and some cooperation with armoured forces are possible. The same will be true in support operations, it will not be possible to operate solely in large and multi-national groups but they will be able to support small units and in support beside other professional and reserve forces in larger commands if the situation is critical.

After the militia training people will know more about the military, the necessity of defence and the country. If they are interested they can join the reserve forces or another option would be an active militia role with weekly or monthly education / training days to improve their skills and proficiency with the equipment they have been trained with. This will be easily attainable because of the spare time left over in the militia trainingcentres.

The professional armed forces, reserve forces, active militia and militia training model will deliver Germany and its people the best of all worlds. They will get a skilled and well prepared and armed defence force within the current budget. A large, good trained and motivated reserve force which can be used when deemed necessary. A large pool of active militia members and an even larger pool of people which have had some military training which can be quickly recalled in a national emergency. And most important of all it leaves the people with choices, like it should be in a democracy. Join the militia training or support your country in the Zivildienst. Have the opportunity to learn something in the militia about the military and about a democratic country and its important values. And after the militia service or better training you are free to go on with your private live or stay somehow involved in the security of your country. And all this in three to four months which is not a long time and will certainly not have a large impact on somebody’s live. Especially because the training will be in everybody’s neighbourhood and at normal working hours so no long travelling and a long time from home. It is more, and should be, like a kind of adventure holiday where you can learn something.

July 1999

July 1999

Updates on Kosovo and Kashmire – Financial assesment

Updates on Kosovo and Kashmire

The world is still a volatile place to be. There are many internal and external problems, tensions and conflicts. Not to lessen the terrible impact on society and the individual’s life of war/conflicts but these are mostly of small scale and low intensity but a number of them have become high intensity and touching large scale levels.

Some perfect examples of these are the problems about Kosovo, the continuing struggle in Kashmire which recently received a new dimension.

Where as the Kosovo problem have reached its peak and a more normal situation is promising to return on the short term, Kashmire has become even more dangerous.

Kosovo

The regime of president Milosevic finally accepted the terms as presented by the G8 meeting in Cologne, Germany, and started to withdraw from Kosovo. It took 78 days of an ever increasing bomb campaign, the ever more likely possibility of the use of NATO ground forces and especially the increased activities of the Kosovo Liberation Army, KLA, against the Yugoslav army, VJ, and Serbian special police forces, MUP, in Kosovo, to make president Milosevic accept the demands of the international community or better NATO. Under the terms of the accord signed in Macedonia on 9 June, the Serb armed forces and security units were given 11 days to leave Kosovo.

Kosovo would be divided into 5 sectors, an US, an Italian, a British, a French and a German sector would be established under command of NATO. The name of the force would be KFOR, Kosovo Implementation Force. NATO would be in command and furnish the majority of the forces. The sector forces would be responsible for the maintenance of law and order, clear the area of mines, booby traps and unexploded munitions, restore the infra structure and support the UN civilian mission in restoring the government and the economy in Kosovo.

The withdrawal of the Yugoslav/Serbian units from Kosovo started on time and was concluded within the given timeframe. At the same time two large movements of people came to live. The Kosovo-Albanians returned to their homes or what was left over from them and a large number of the Serbians afraid for the revenge of the Albanians packed their belongings and moved into Serbia.

NATO KFOR forces moved in as fast as they could but the inadequate infrastructure and the possible existence of mines and booby traps in Kosovo slowed down their movement. A small Russian unit of paratroopers took the opportunity and moved from Bosnia through Serbia into Kosovo and occupied the airport at Pristina. The Russian could now reinforce their rightfull place in the solution of the Kosovo conflict and at least try to claim an own sector in Kosovo.

After prolonged negotiations it has been agreed with the Russians that they will send in about three battalions with support forces, about 3.600 men, into Kosovo. They will be stationed in the Italian, US and German sectors under NATO command but with a seperate command line to Moscow.

The KLA moved in reaction on the Serbian withdrawal out of the countryside into the towns and cities and they started to arrest people and occupy buildings to install their own structures. Often before the NATO KFOR forces arrived the KLA was alrady on the streets. The KLA have become a force to be reckoned with in the immediate time after the Serbian withdrawal.

NATO command and the sector commanders could persuade the KLA out of the positions they more or less had quietely occupied. After negotiations between NATO and the KLA, the latter decided to obey the NATO orders for the moment as this would be the most prudent and beneficial. The NATO and the international community have something to offer Kosovo and the Balkan region in general desparately needs, financial, material and technical support to reconstruct the region. And ofcourse the threat of the fighting power of the full deployed NATO KFOR force which is no adversary to the KLA. But as long as the NATO KFOR is not fully deployed and some civil government structures like a police force is not re-introduced violence between the two groups will continue and KFOR can only react and try to stop the most severe cases of agression, revenge.

NATO can have some kind of agreement with the KLA leadership and some of the local KLA commanders but some KLA units still do what they want and behave as they were in control. They continue to intimidate, arrest, beat and steal from Serbians, Gypsies and Albanians they suspect of collaborating with the Serbians. They feel and behave as the majority of the Albanians do, they are the victors and because of the wrong doings, atrocities, of the Serbians, they can take revenge and burn the houses of the Serbians and threat them very badly.

The problems and the hatred between the two people are very large. The economy, the infra structure and a large number of houses in Kosovo are destroyed. The Serbians who remain in Kosovo are afraid of the hostility of the Kosovo-Albanians. The Albanians in turn are angry because of the injustice, to phrase it mildly, done to them by the Serbian security forces and want retribution, revenge.

The psychological pattern of the peoples living on the Balkan, black and white-you win or loose-you are for us or against us mentality, will make revenge, ethnic cleansing and agression against opponents a normal and to expected reaction. In this particular environment, agression between the two groups will continue and will be very difficult to stop.

NATO KFOR have until now be greeted by the Albanians and be at best considered neutral by the Serbians. This could change very easily in this climate if one or both get the feeling of being treated unfair. KFOR is in danger to become a target from both sides. Any weakness will be exploited by both groups, a determined and hard but fair intervention of KFOR is necessary if they want to keep the respect of both groups and minimise the violence.

A living together will prove to be very difficult as there are to many bad feelings to eachother and the demands and expectations are very divergent. Yugoslavia and the Serbians living in Kosovo want to keep Kosovo part of Yugoslavia, which will be very difficult to achieve. And a large number of Kosovo-Albanians want to become independent and would like to eject all Serbians living in Kosovo. A small number of Kosovo-Albanians, the hardliners in the KLA, would like a greater Albania which would be unacceptable to the international community and especially to Macedonia, Montenegro and Greece with small numbers of Albanians within their borders.

The KFOR forces in Kosovo will minimise the violence in Kosovo if they can get and keep the respect of the people in Kosovo. KFOR could deliver a kind of violent free society, occassional clashes between the two people’s can not be excluded, but in general the situation will be stabile. KFOR can thus create an artificial stability which wil give the people an opportunity to rebuild their country. The real problem in Kosovo can not be solved by KFOR as the Serbians and the Albanians in Kosovo have to learn to live together if they want to have a common future in Kosovo.

The position of the Serbians will be diminished after the Belgrade government lost all its influence in the province, at least as far as they stay in Kosovo. But this will also be true for the KLA. The KLA, which is a very loose and diversified organisation, will find it increasingly difficult to rally support for their goals. In the immediate aftermat of the Kosovo conflict the KLA will find supporters but if stability has returned two things are prone to happen. First the KLA will find it very difficult to remain together as two major groupings are represented. Namely a right and left wing, the right wing are more fascist bred and the left wing communist bred. And second, the attractivity of the KLA will loose its glamour as the war will be over and the war-heroism will fade away.

Moderate policies, reconstruction and even some better relations between the two people will be the road to a better future of Kosovo. The relations question could however take another two decades.

Kashmire

The problems between India and Pakistan about the divided region of Kashmire intensified as some people occupied a number of hills in the vicinity of the town of Kargil which are overlooking the vital national highway 1A linking Srinagar to the town of Leh on the border with Tibet. The people, group, responsible for the occupation are described by India a mercenaries/terrorists commanded and supported by Pakistan, in particular the secret service SIS and commandos of the Special Service Group. And by Pakistan as Kashmiris, freedom fighters, who want to liberate Kashmire of the Indian occupation.

The size, 600 men, the equipment, assault rifles, mortars, snow scooters, heavy and specialised radio and radar equipment, special clothing, the organisation and the occasional artillery support out of Pakistan make it very unlikely that the group acts on its own. The operation is to large, to well prepared and furnished with advanced equipment, in short to complicated to be the work of the Kashmiris. The operation has the same blue print as the Pakistani operation and support of the Afghan Taliban coup. The Pakistani influence is to clear to be covered.

This essential small and low level operation, a small group occupying a small tract of land, is a good opportunity for Pakistan to pressure India and put Kashmire on the international agenda but it could have dramatic consequences between the two countries. The strategic importance of the site, the highly specialised character of the force and operation which is only possible with outside support and the more then obvious advantage for Pakistan will strain the relations between the two countries to the max. Everything seems to be possible in this situation. If India perceives its position worsened and Pakistan’s alleged involvement and advantage increased this could lead to a direct confrontation between the two countries.

The geographical conditions of the region favour defensive operations. A well trained and positioned force will be difficult to eject out of the Kargil region. Indian forces encountered several difficulties in removing the intruders. With the use of air assaults, artillery barrages and carefull pressing foreward infantry forces at night they could slowly take over positions of the intruding force. If the resistance remains the same than this operation could take a couple of months, in a worst case scenario, before all intruders have been defeated.

This time of initial combat is the most dangerous of all as India refuses to accept any diplomatic offerings of Pakistan or the international community and the intruding force on the hills is not yet eliminated. A wrong interpretation and perception of the situation could easily escalate the conflict in an all out war between India and Pakistan.

India is partly right in its refusal of mediation because this would legitimate the action of the intruding forces around Kargil. Any mediation and acceptance would lead to a strengthening of the position of the intruders, make it more difficult the remove them in the future and more importantly it would be beneficial for Pakistan.

This operation is always beneficial for Pakistan because even if nothing happens the Kashmire problem receives more international attention then before. And with some luck Pakistan could gain by the use of a small force, a reunification with or independence of Kashmire, virtually free of charge if India would accept the ploy. Something they could not achieve in war and the decade long attrition warfare in the Karakorum mountain range/Siaachen glacier. A piece of brinkmanship between nuclear states with a high reward at low cost.

Financial assesment

The world economy is not doing very badly, the developed markets continue as before and the Asian, Latin America and Russian markets show some recovery after the disasters in 1997 and1998.

The U.S. economy is doing the best of all and contrary to last year the growth is based on a larger number of sectors. This widening is a sign that the American economy as a whole is doing fine. The only disadvantages in the U.S.A. are the possible interest rates rise and the high valuation of large number of very good stocks. A rate hike will diminish the growth of the stock market as do the high valuations but these will also make other companies more interesting and worthwhile to procure. The earnings of a large number of companies from a larger number of sectors are very promising, the first announcement from the companies support this trend. This will mean a broadbased growth not only the financial and some groups of tech stocks will do good but also the basic industries as Caterpillar and Georgia-Pacific.

The Asian economies have bottomed and are now coming back although it will take some time before old levels and growth can be reached and maintained. There are still very large problems in Asia which need to be adressed. All growth is largely export induced where as internal consumer demand and financial business prudency are the most needed to create sustainable growth.

Some of the Latin America economies are also slowly showing some more growth. But there are still a rather large number of problems like the currency and fiscal problems in countries like Brazil and Venezuela. They will continue to depress earnings growth and keep the economies in the danger zone. The stocks in those countries are cheap but risky.

Colombia is in much deeper trouble. They will be forced to devaluate their currency which could have a negative effect on the other countries in the danger zone.

The more promising countries and responsible for the Latin growth are Chile and Argentina. They are more stable and will show increased economic growth. Their economies have better weathered out the Asian crisis and they have contrary to former agreements closed their markets to for example Brazilian products and circumvented product dumping and protected their own industries.

The Russian economy is still suffering from the deficiencies in government leadership, trade and financial legislation and with lagging consumer purchasing power and investments into the industries. The demand is to low to generate growth. And the whealing and dealings of criminal organisations and the peculiar way of doing business of certain, what they call in Russia, bizznismen are also not very promising as preconditions for a healthy economy. Not withstanding all these problems the Russian economy has improved somewhat as the industrial production improved. But this stems largely from the fact that Russian products have become more popular because western or eastern products for that matter are simply to expensive. The improvements in the stockmarket are more based on former weakness then on regained strength. The Russian stocks remain therefore very speculative and uncertain in their performance.

The European economy is differentiated. Some countries have a weak economy because of the high unemployment figures, large budget deficits and low demand. And some countries are doing much better in Europe. Countries like the Netherlands, Spain, Ireland and the United Kingdom have shown in recent years a steady and above average growth of their economies.

The first signs of a recovery are visible in the weaker European countries with a lower unemployment figure and higher demand. They are not over the hill as a lot of problems have to be solved but within two years the situation will see a substantial improvement and a rejuvenated Europe.

The stockmarkets

The stock markets are partly reflecting the healthy situation of some economies. As the markets are sometimes more worried about inflation and valuation than in the results of the companies. And ofcourse some reports, good and bad, have an above average impact on the price of stocks. Psychology is distorting the price of stocks.

The financial markets have been moving sideways. There have been no large rises nor droppings on the stock markets of the U.S.A. and Europe. As the better then expected earnings came out the markets were moving up but the inflation nightmare, the rising of interest rates, pushed the markets down and nothing really happened. The market indexes remained approximately on the same line with a slight upward movement.

The majority of the other stock markets, Asia, Russia and Latin America, have done better and experienced a period of growth. They have been growing on average 25 % since the beginning of the year.

July 1999 will maybe mean a break of the sideway trend of the U.S. stockmarket, this depends on the decisions taken by the U.S. Federal Reserve, the Fed, to do nothing or rise the interest rates by an unknown number of basispoints.

If, very unlikely, the Fed is neutral the markets will move up by 5-8 % as a correction to the recent downward push in the market. If the Fed, most likely, rises the rates by 25 or even 50 basispoints the market will remain the more or less same and do nothing. A rise of 25 – 50 basispoints is an expected move and the market has anticipated this development and pushed the market down. But if the Fed rises the interest rates by more than 50 basispoints or is talking and thinking of a 1994 style of three or four consecutive rises of interest rates, the market will react violently and fall by at least 5-10 %.

The other markets around the world will react on the interest rates in the U.S. because they will increase the costs of U.S. dollar denominated debts and make exports into the U.S. cheaper and more profitable.

The effects for the third world will be bad as they are not able to profit from exports into the U.S. The will have only negative consequences of the interest rates rise, namely higher debt service and more expensive imports.

The situation in Asia and Latin America is more stable and will remain the same for most cases as the higher export revenues make up the higher costs of imports and debt service. Asian and Chilean and Argentinian stock markets will probably deliver a continued growth on the second part of 1999. The growth will be lower than in the first two quarters but will remain in the double digit range.

Only the weakest of Asia and Latin America, like Indonesia and Colombia, who do not have their financial affairs in order and who’s industrial/economical activities are still not up and running will get additional problems because of the Fed’s action.

Only Europe will benefit a little from higher interest rates as the export revenues and opportunities will increase. As the Euro will loose some value to about US $ 1,015 to 1,025 vs. an Euro but this reflects the strength of the U.S. economy and the present not so strong European economies. Afterall the Fed rise is not for fun but to contain an overheating of the U.S. economy and inflation. The lower value of the Euro vs. the U.S. dollar is not dramatic or a prove that the Euro has failed as a currency, it happened not so long ago that the U.S. dollar had the value of DM 1,90-1,95 and higher. Remember the Reagan days.

The European stock markets will benefit from a possible U.S. interest rates rise and the slowly improving European economies. New highs are therefore very likely in the second part of 1999. The first decade of the next millennium could become an European decade. The European economies are recovering from a depression and it might be their turn to experience an economic boom after the Japanese eigthies and the U.S. nineties.

June 1999

June 1999

Indonesia revisited

Indonesia, a divided country

A short review

Indonesia have received more than their fair share of troubles in recent times. They were not only severely hit by the Asian economic crisis, admittedly this was largely home made, but the contradictions in the country seemed to erupt or intensify beyond everything that was thought possible.

The majority of differences, latent conflicts, which were existent in Indonesia could be pacified until the beginning of the economic crisis by the fantastic economic growth and progress and by an accepted system of more or less silent suppression. A strong government based on the much glorified Asiatic values was the best system for Indonesia at least this was the common thinking in the booming years. This semi-dictatorial system of government delivered to nearly all people some kind of economic bonus. Only a few groups of people refused to cooperate in some way or the other in the Indonesian miracle. These were in course mercilessly prosecuted and suppressed as became clear in Irian-Jaya and on Sumatra and especially in Aceh.

The booming economic development and the activities of the Indonesian security forces could create some kind of artificial security in Indonesia but this could only last that long as the regional and economic circumstances remained positive.

The economic crisis destroyed all old and vested alliances and the societal structure of Indonesia. The currency devalued, companies went bankrupt, unemployment risen to unknown levels, the traditional political and economical elites ousted and maybe the most dangerous of all old soars, contradictions, in the 100+ peoples and 1.000+ island country became active again.

Indonesia anno 1999

As the old government and the majority of the political and military leadership was removed from office an interim government under the leadership of president B.J. Habibi took over the helm. The economic crisis continued but it bottomed as the first international financial support packages arrived, things did not get any worser at least economically.

The political situation on the other hand stayed in the wild waters of uncertainty as the power position of the government was questioned and antagonists to the government Golkar party and the Indonesian federation became more active.

President Habibi managed to create some economic stability but the upcoming elections and the ethnic and independent induced movements all over the country created widespread political and social instability.

The delayed elections which are planned for the beginning of June 1999 will not bring the much needed political stability to rebuild the country. There are a number of problems of diverse nature which will prevent the much needed national support. There is first the legitimacy problem of the government. Second the large number parties which fragmentate the opposition. Third the ethnic tensions. And fourth the independence movements on a number of islands or regions. The third and fourth problem go sometimes together which makes the situation even more explosive.

The government

The government is under siege in Indonesia. The political inheritance from the Suharto regime and the performance of the Habibi government is undermining the position of the government, its institutions and its representatives.

The government of Indonesia is still linked with the wrong doings of the Suharto regime. The unfair and often wrong economic policies and the harsh suppression of any kind of opposition by the security forces has made the government disliked. This triangle of government institutions, the Golkar party and the military and security forces, ABRI, are governing the country and the majority of those people are more or less Suharto people, or are at least perceived as such. The highest leaders and the most extreme cases are removed from office but the lower echelons are still present.

President Habibi has introduced some improvements in the economic field and in the treatment of the opposition but more out of necessity than out of conviction. The changes have created some disagreement in the government between what we like to call the reformers and the traditional groups like the armed and security forces.

The reformers in the government want to modernise the country with the introduction of accountability and a western style economic policy. The traditionalists do more or less agree with this policy because it is necessary to rebuilt the country. The changes in the composition of the government structure and parliament is questioned as it diminishes the influence of the traditionalists and the all powerfull military. The security policy and especially the ideas of autonomy or even independence for some parts of Indonesia are totally unacceptable to the traditionalists. For them this is a death sin against the fundamental principles of a united Indonesia.

The inheritance of the former regime, incompetency of the current government and the rift in the government are considerably undermining the position of the government and its abilities to deal with the many problems which exist in Indonesia.

The multitude of parties

The opposition in Indonesia is very fragmented if one is considering the number of parties which want to take part in the elections. There 183 parties listed for the elections. You can view them on the internet at http://www.detik.com/analisa/199808/19980828-0950.html.

A large number of these parties do not have a lot of support and/or are limited to just one group or region. The majority are focussed on just their own particular interest. Consequently they will not make a big impact on the elections and only a couple of the larger parties will be represented in the new parliament. And a coalition of these rather different parties will form the new government.

But even the larger parties are very fragmented in Indonesia. The governing Golkar party, which has a large following with everybody who is some way connected with the government, does not have enough support in the society to keep their important position. The rift in the government is thereby undermining the position of Golkar. Golkar is further significantly undermined by allegations of the use of violence against the oppostion and they might even be not allowed to take part in the elections.

The other large parties, the Partai Demokrasi Indonesia, PDI-P, under the leadership of Megawati Sukarno-Putri, the Partai Kebangtikan Bangsa, PKB, of Abdurrahman Wahid often called as Gus Dur leader of Hahdlatul Ulama the largest muslim organisation in the country, and the PAN of Amien Rais, leader of Muhammdiya the second largest muslim organisation in the country, will have a larger impact on the elections.

They have created some kind of alliance in the time to the elections. This allaince is very opportunistic as the policy of each of them is to different to remain valid after the elections. But in the months before the elections, Indonesia did not experience the expected violence between the many parties. This is mainly the result of the close cooperation between the three large parties, PDI-P, PKB and PAN.

The elections in Indonesia are largely an affair of personalities. Megawati Sukarno-Putri, Gus Dur and Amien Rais are all strong personalities and the election campaigns are around them. This has made cooperation in the time before the elections very easy and beneficial. They have all the same goal the removal of Golkar and Habibi who are not very popular in Indonesia. If that goal is achieved the cooperation will prove to be much more complicated as the ideology of each differs and party politics will start playing an important role again.

The parties in Indonesia can be divided into two main groups, the Islamic oriented parties and the Pantjasila oriented group. The Islamic oriented parties are mostly moderate parties which want to some extent a more islamic dominated society. This should however not be mistaken with the Middle Eastern versions of Islam kind of countries.

The Pantjasila oriented parties are all based on the five values for unity in Indonesia, Believe in God, humanity, social justice, nationalism and people’s sovereignity. These principals are the foundation of the Indonesian state ideology since its existence as one nation. The goal of all these parties, including the PDI-P, is essentially a same kind of Indonesia as existed before the economic crisis except without the corruption and the Suharto style of nepotism but with more democracy.

Ethnic conflicts

Indonesia is a country consisting out of many islands and each island has one or more kind of people living on it. The majority of the people are of muslim religion but the original population of many islands are of christian or animist faith.

The Indonesian archipel have known for centuries migrations of people between the islands. The number of people migrating were mostly low and the slow. The newcomers integrated more or less in the society without creating to much friction. The newcomers were different and remained so but there was no hostility as they did not compete in the economy and had just little political influence.

The Indonesian government had thereby for many years a policy of transmigration. The transmigration had firstly the goal of eliminating the over population of the island of Java. Java is essentially the main island of Indonesia. The political and economical leadership is located on Java and all important ideas and movements originated on Java since the days of colonialism. And secondly it should improve and accelarate the development of the other islands. And thirdly it should change the composition of the population of the most important islands in favour of the Javanese.

This transmigration policy worked well in the beginning but as the numbers of Javanese on the islands began to rise dramatically and started to dominate the islands the attitude of the original population became more hostile. The Suharto regime and the economic progress could suppress the hostile attitude on the islands but some hardliners, the people and organisations who also demand autonomy or independence, on the islands and especially the economic crisis turned the situation against migrants and even violent.

The economic competition, the struggle for political power, the rise of the idea of muslim identity and the economic crisis as a multiplier made any small difference and problem in Indonesia escalate into a contradiction of national importance or even survival.

On Java the muslim majority against the Christians and the Chinese minority. On the Moluku islands between the original Christian population against the muslim migrants. On Sulawesi, Celebes, between migrants and the original Dayak population. And so on, nearly all islands with a larger migrant community are in turmoil.

Autonomy and independence

As a federation Indonesia has a large number of different people living in the country. Some of the areas and people were inherited from the colonial days, some peacefully added to the federation others however were outright conquered by Indonesia.

Until the economic crisis the federation could be kept together by the economic progress, the financial support the government good give to the areas, especially the poorer regions, and by the suppression of any opposition to the Indonesian rule.

The carrot and stick method had worked well for some areas but a number of hardliner opposition groups continued their struggle for more autonomy or even independence.

The economic crisis and the internal power crisis of the government gave a number of groups the opportunity to ventilate their thoughts about the future of Indonesia and particularly the future of their region. The majority of the islands would like to receive some kind of autonomy within Indonesia. This wish has become stronger because of the ethnically inspired violence on the islands. The peoples of the Moluka islands, Sulawesi (Celebes), Borneo and a number of other small groups demand more influence, political power, in the government of the island or region.

The situation on Sumatra is more difficult. There are some people who want more autonomy but their number is falling. As ever more people and especially the organised groups demand secession from Indonesia. The southern part of Sumatra is more autonomy minded but the more north you go it will get more independent minded. The region of Aceh is the most fanatic in their struggle for independence. Sumatra or parts of Sumatra, like Aceh, possess enough natural resources to make an independent state economically viable.

The most fanatic groups fighting for independency on Sumatra are the GPK, the GAM and Aceh Merdaka. The withdrawal and softening of the policy of the Indonesian armed forces, especially the Kopassus special forces, from and on Sumatra have not brought the independence movements to the negotiation table. On the contrary, they have used the weakness of the government to their advantage and intensified the fight for their goals.

Some of the conquered parts of the Indonesian state are also not pacified. On Irian Jaya a small organisation, OPM, Organisasi Papua Merdaka, continues to fight the Indonesian occupation. The OPM has become relativily stronger as the Indonesian forces have been weakened by the economic crisis. The OPM weak in men, arms and support has seen some opportunities by a combination of increased military pressure on the Indonesian government and diplomatic pressure to get some promises from the government about the future of Irian Jaya. Something like the autonomy/independence referendum like the one on East-Timor.

Another more violent and complex problem is on East-Timor. Indonesia conquered East-Timor after the former colonial power Portugal left East-Timor. The East-Timorese never accepted the Indonesian occupation and resisted it from the beginning. Only because of the widely and inhumane use of the security forces Indonesia could keep control of the region. The muslim Indonesian forces and migrants and the in majority Christian East-Timorese gave the conflict an additional explosive character.

After a prolonged fight between the Indonesian security forces and the Fretilin, the East-Timor organisation which is fighting for independence, the economic crisis and the subsequent changes in the government forced the government to look for an alternative policy. The Indonesian government turned their policy by180 degrees and offered East-Timor on the short term a referendum with the choice of autonomy or independence.

This was greeted by the Fretilin and others supporting the independency but they warned in the mean time for negative side effects. They demanded the disarmement of the people which were armed by the government to protect themselves against the Fretilin. Because these people would oppose the autonomy or independence as they would loose their position in the East-Timorese society. They would not hesitate to use their weapons to frighten people in the elections who support the independence and fight the results of the elections.

This offer of Indonesia could also be a way to show East-Timor and the international community that they are necessary in the region to maintain law and order. They are the factor between order and the chaos of war. But the autonomy/independence offer has been opposed by the traditionalists and the armed forces in Indonesia as they are afraid of a domino theory. All Indonesian people/islands would now demand autonomy or independence about which they are partly right. The traditionalists are however to weakened by the economic crisis to oppose the policy of the Habibi government. But Habibi has most likely received an enemy for live by this offer and has split the government into two groups.

The problems in East-Timor are far from over. The Indonesians still control the region and the future looks bleak as the pro- and anti- independence supporters are prepared and waiting to attack eachother. They are just waiting for the signal to begin.

Summarized it can be stated that Indonesia has a number of people living in regions which would like or even demand more autonomy and even some of them independence. The position, at least the power position as the majority of the regions have also been hit by the economic crisis, of the several peoples living on the islands have been improved as the government of Indonesia have become weaker and entangled in many social and economical problems which demand their fullest attention.

The many peoples country Indonesia is however dominated by the Javanese who are also in fact governing the country until now, 1999, by the triangle of the semi-allies of the Suharto-clan, the Golkar party and the armed forces, ARBRI. They are all more or less bounded to the pantjasila ideology of a united Indonesia. All those autonomy and independence sounds out of the provinces are unnatural for the government and they vehemently oppose them. All changes in the form and structure of Indonesia are forced up on to them by the economic crisis and the internal political weakness. The increased attention to the muslim religion and identity is in the meantime increasing the tensions between the several religions and the many different peoples.

Future expectations

The situation in Indonesia is not likely to improve on the short term. There are a number of social and economical problems which surfaced after the economic crisis of 1997. These problems were increased as political, ethnic and religious differences on Java but more dramatically on the many other and non-Javanese islands erupted.

Ethnic and religious inspired violence happened all over the country. This will continue until all people are living in their own homogenous area and the economy will show substantial strength.

The political structure and security organisations became under pressure and started a transformation and a cutback of functions. The government had become weaker and the demands for more autonomy and independence became louder and are uncontrollable by the government. The economic and political weaknesses had and has made the goverment unable to cope with the demands out of the regions in particular and the many social and economical problems in general.

The current government of president Habibi has and will not be able to solve the many problems of social, economical and political nature. They need to create political and social stability to have economic stability. This will prove difficult to attain as long as the economy remains weak. A vicious circle from which it will be difficult to escape without foreign support and more important substantial offers to the peoples outside Java. Which in turn would dissatisfy the Javanese.

The same is valid for the opposition as they are committed to the pantjasila ideology of a united Indonesia, as is the Habibi government, or the muslim oriented parties which want a united Indonesia with an islamic flavour. Both will alienate the many peoples living in the provinces, e.g. the many islands of the archipel.

The elections will not bring the solution to the problem as all the major opposition parties are Javanese and as mentioned before committed to an united Indonesia. Difficult choices have to be made which will meet a lot of opposition from the majority of Javanese muslims. But democracy is more than just the representation of the interest of one group it is also the protection of the minorities. And as long the PDI-P, the PKB, the PAN or for that matter Golkar do not understand and apply the idea of protection of the minorities they will not be able to keep Indonesia together.

If the main Indonesian parties and the government cannot control the muslim mob and remain ignorant of the wishes of the many peoples in Indonesia political and social stability will be impossible to accomplish. Only an Indonesia as a federation were all, Java, Sumatra, Borneo, Sulawesi (Celebes), Moluka islands and so on are fairly represented will be able to return to a strong and united Indonesia as it seemed to be before the economic crisis of 1997.

There will be a big and decisive task for the new government in Indonesia if they want to return Indonesia to the tiger countries of south-east Asia. If they fail to solve the big problems of Indonesia it will most probably mean a different and smaller Indonesia in the next milennium.

On the short term the military and the internal security services are able to subdue any movement which want to change the structure of Indonesia. None of the independence movements are something of an equal opponent to the military. But the political costs, national and international, and the economical consequences might be prohibitive high to execute a ruthless suppression of the independence movements in Indonesia. A political solution is the only opportunity for Indonesia to survive as an united nation on the long term.

IN-SE Services

Intelligence – Security Services

Maandelijks archief: februari 2015

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