An Agenda for Asia

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yongyang will likely try to gain the upper hand next year with more brinkmanship, analysts say. "North Korea will deliberately provoke a crisis through a military show of force," predicts Dong Yong Seung, a North Korea watcher at the Samsung Economic Research Institute. The six-party talks between North Korea, the U.S., China, South Korea, Japan and Russia will likely resume, allowing all sides to pretend that the crisis is not a crisis. But there is little optimism the talks will produce results.

President Bush will be under pressure from China and South Korea to make concessions to Pyongyang, in the hope that it trades its nukes for massive amounts of aid. Seoul's increasingly close relationship with the North will make it harder for Washington to nail down a deal that leaves Kim Jong Il no wriggle room. But the new Administration is unlikely to back down from the position that any deal has to shutter North Korea's nuclear program for good.

So far, North Korea has pulled back from the brink by not formally declaring itself a nuclear power. It has also stopped short of proving conclusively that it has a nuclear bomb, despite widespread speculation that it would soon test such a device for the first time. Either move could unleash a nuclear arms race in Northeast Asia, as first Japan then South Korea might follow the North into the nuclear weapons club. That prospect is enough to keep the White House focused on the region.

PAKISTAN/AFGHANISTAN
Fragile Allies
By Tim McGirk | Islamabad

For the next U.S. Administration, handling Afghanistan and Pakistan will require the deft touch of a demolition expert faced with a ticking bomb. In both countries, Washington is gambling on the survival of its chosen favorites—Afghan President Hamid Karzai and Pakistan's Pervez Musharraf. But this strategy has its risks; both leaders have been the targets of assassins, and there is a shortage of second-string choices suitable to Washington if either Karzai or Musharraf are killed.

Karzai won a comfortable victory in the October presidential polls, with 55% of the vote, but the process opened dangerous ethnic fault lines. Karzai was the overwhelming winner among his fellow Pashtuns, but he received less than 1% in the northern, Tajik-majority province of Panjshir. Washington can assist Karzai by speeding up the flow of foreign aid and by ensuring that it reaches the far corners of a country that has been ravaged by a six-year drought. With a little help from NATO friends, Washington must also extend the reach of the military civil-reconstruction teams into the mountainous provinces where they can disarm the warlords and build roads, schools and clinics. Armor-plated aid is needed to thrust into the southern and eastern regions where Taliban rebels find it easy to recruit Pashtun tribesmen who have received little relief from international agencies. Western diplomats in Kabul say that, at most, the Taliban, along with their allies al-Qaeda and renegade commander Gulbuddin Hek-matyar, are capable of harassing coalition and Afghan forces but not of conquering back towns and provinces.

The U.S. should discourage Musharraf from playing a double game with the Taliban. Some influential elements inside the Pakistani intelligence service and the military remain convinced that they can influence events in Afghanistan to Pakistan's benefit by backing the Taliban. Officials in Kabul are perplexed that Pakistan has failed to capture a single top Taliban commander, although U.S. and Afghan officials have evidence that dozens of rebel chiefs are living openly in the Pakistani border towns of Quetta and Peshawar. There is the perception in Kabul that, as one Afghan official put it, "if Islamabad can't have a satellite government in Afghanistan, their second option is to create chaos and keep the pot boiling."

Behind the scenes, the new U.S. Administration should help broker a settlement between India and Pakistan over the disputed Himalayan territory of Kashmir, says Riffat Hussain, professor of security studies at Islamabad's Quaid-e-Azam University. That would defuse tension between these two nuclear-armed enemies. A partial settlement over Kashmir could be one major surprise in the offing. Musharraf has suggested dropping Pakistan's insistence that a referendum be held among Kashmiris to choose whether they want the territory to belong to India or Pakistan. But President Bush will also have to decide whether to push Musharraf into establishing a timetable for the restoration of democracy in Pakistan. As opposition politician Chaudhry Nisar told TIME: "Why are the Americans boasting about bringing democracy to Afghanistan when nothing is being done in Pakistan?" By relying too heavily on Musharraf—and overlooking his authoritarian impulses—the U.S. has disillusioned many Pakistanis. With moderate political groups in Pakistan neutered, many of those dissatisfied with Musharraf are turning toward radicals with harsh, anti-American agendas.

ECONOMY
Financial Jitters
By Michael Schuman | Hong Kong

After years of surprisingly strong growth, Asian economies are slowing down. In October, Morgan Stanley downgraded its 2005 GDP growth forecast for the region (excluding Japan) to 5.5%, compared with 7.2% in 2004. The main culprits are the record-high price of oil, an expected weakening of the U.S. economy and an ailing dollar, which makes Asian products more expensive for U.S. consumers and curbs export growth. But a new factor putting the brakes on Asia is China. Over the past two years, soaring demand from China for everything from steel to palm oil to semiconductors has been the engine driving Asian economies. Fear of overheating, however, has forced Beijing's policymakers to curtail bank lending and new investment. For next year, Morgan Stanley expects China to grow at a still swift 7%, but that's much slower than the 9.5% forecast for 2004, and sluggish enough to dampen growth throughout Asia. Japan might be hardest hit. Though a sparkling recovery there had fueled hopes that more than a decade of stagnation had finally come to an end, Morgan Stanley estimates that the world's second largest economy will stumble to only 1% growth in 2005, from 4.4% this year.