ASEAN fears Iraq war may cut growth by up to 1.0%

ASEAN fears Iraq war may cut growth by up to 1.0%

Eileen Ng, Agence France-Presse, Karambunai, Malaysia

Southeast Asian nations are walking a political tightrope over an imminent U.S.-led war on Iraq and fear a prolonged war could cut their economic growth by up to one percent, the ASEAN secretary-general said Tuesday.

Singaporean diplomat Ong Keng Yong said an expected surge in oil prices and a drop in foreign investment due to war would hurt the shaky economic recovery in the 10-member Association of Southeast Asian Nations (ASEAN).

Although ASEAN members such as Malaysia, Brunei, Indonesia and Vietnam produce oil, Ong said this was not for domestic consumption and the region still depended on imported Middle East oil.

"Some of the economies have told me that if war goes on for more than a month, growth can be affected by 0.5 to one percent," Ong told reporters on the sidelines of an ASEAN foreign ministers' retreat here.

He said ASEAN economies remained vulnerable five years after the devastating 1997/98 regional financial crisis and they have less resources to cushion the fallout of a war in Iraq.

"I don't think '97/98 (crisis) will happen again but in contrast to pre-1997, our economies are in a more vulnerable state.

"There is not too much money flowing so easily into Southeast Asia, everybody became more tight fisted and careful about spending... so there is not enough buffer in the market place.

"If we don't manage our economies well enough and if oil prices rise to 40 dollars for a prolonged period, then it's like brittle plastic -- the economy can break easily," he warned.

An attack on Iraq without a green light from the United Nations also poses a dilemma for ASEAN over its future dealings with the United States, its key trading partner.

Ong believed the political disagreement would not undermine trade ties with the United States but he said a U.S.-led war in Iraq would put ASEAN in a "tricky situation" due to its large Muslim population.

ASEAN includes the world's most populous Muslim nation Indonesia and Malaysia and Brunei, which fear a war in Iraq would create more Islamic extremism. But some members are aligned to the U.S., including Singapore and the Philippines.

"We will not have a terrible open rupture with the U.S. administration but it will require a lot of political diplomacy on our part. Some may call this double-face diplomacy but it's necessary to walk through this minefield," Ong said.

He said ASEAN would also have to further tighten security to cope with the risks of more terrorist activity as Muslims were likely to perceive the attack on Iraq as an attack against Islam.

"It will be trying for most of us... the important thing now is that ASEAN countries have to show the population that they are on top of the situation and that they know what measures to take if things get out of control."

Only Philippines Foreign Minister Blas Ople is not attending the ASEAN retreat at a secluded beach and golf resort here northeast of Sabah's capital Kota Kinabalu.

The retreat ends Thursday and is to be followed by a two-day meeting of senior officials from the ASEAN Regional Forum (ARF), Asia's top security group, on countering terrorism and transnational crimes.

But officials said the ARF meeting, co-chaired by the United States and Malaysia to discuss border and document security, may be called off if war breaks out.

The United States has downgraded its presence, with the head of the counter-terrorism office in the U.S. State Department, Cofer Black, canceling his trip due to "other obligations," a U.S. official told AFP.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

ARF includes the 10 ASEAN states, along with Australia, Canada, China, the European Union, India, Japan, Mongolia, New Zealand, South Korea, North Korea, Papua New Guinea, Russia and the United States.