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To: sangkancil@malaysia.net
Date: Wed, 15 Oct 1997 22:00:15
Subject: [sangkancil] Will Asia's Economic Tigers Recover From the Crisis? (fwd)
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From: dfiddle@mn.uswest.net (Dennis L. Fiddle)
Date: 15 Oct 97
Originally Posted On: alt.culture.indonesia
Captive Of a Boom Gone Bust
Will Asia's Economic Tigers Recover From the
Crisis?
By Keith Richburg
Sunday, October 12, 1997; Page C01
The Washington Post
A gray-white haze blankets an area more than
half the size of the continental United States,
obscuring skyscrapers, closing schools and
airports, and sending thousands to hospital
emergency rooms with respiratory problems. The
mishaps pile up -- a plane downed, a cargo ship
sunk. Local currencies continue their downward
slide, and now three countries (Thailand, the
Philippines and, most recently, Indonesia) have
run to the International Monetary Fund (IMF)
seeking multibillion-dollar bailouts.
Southeast Asia, a region that once looked like
it could do no wrong, suddenly seems on the
brink of an economic, social and environmental
abyss. Just a few months ago, the dinner table
talk there was of how long the region's
double-digit growth could be sustained. Now the
stories are of rising suicides and laid-off
bankers in Bangkok forced to take jobs as
taxicab drivers.
So this is the Asian economic "miracle"?
The miracle was always a bit of a myth, infused
with a heavy dose of hype. But that is to be
expected, since to many Westerners, this vast,
diverse, heavily populated part of the globe
known as East Asia has always been the subject
of wild exaggeration and oversimplified
analysis. In the 1980s, the popular notion in
the West was of "the Japanese challenge," when
an army of economists warned that the Rising
Sun was set to overshadow the United States
with its superior technology and business
acumen. That gave way in the '90s to "the China
threat," in which the West was to be engulfed
by Communist China's huge economic potential
and superpower ambitions. There were the
"tiger" economies of North Asia, then the
"cubs" of Southeast Asia, all soon destined for
developed-world status by a combination of
sound economic policies, free trade and astute
leaders.
For Western economists fixated almost
exclusively on growth rates, the countries of
Southeast Asia could do no wrong. Leaders like
Indonesia's Suharto, Malaysia's Mahathir
Mohamad, and Singapore's Lee Kuan Yew were
uncritically hailed as "visionaries" and
"nation builders" whose policies and
personalities should be emulated across the
rest of the non-Asian developing world.
It was only to be expected that many Asians
themselves soon started buying into the Western
hype.
A decade ago, the great lament among Southeast
Asians I talked with was of the region's
debilitating inferiority complex, deeply imbued
after years of European colonialism (or in the
case of the Philippines, American colonialism),
war, occupation, poverty and underdevelopment.
The West was to be envied, and emulated, they
said.
But after a decade of 8 percent to 10 percent
growth, beginning in the latter half of the
'80s, a new regional doctrine took root -- the
notion of Asian superiority. Self-confidence
eventually gave way to hubris. Instead of
wanting to emulate the West, an alternative was
espoused, a philosophy called "Asian values"
that often became simply an eloquent
justification for non-representative,
authoritarian government.
When a Western politician, a human-rights group
or a newspaper reporter would raise questions
about a Southeast Asian government's treatment
of a dissident, or restrictions on political
activity, the reply was abrupt and predictable:
Don't tell us how to run our affairs since,
after all, we've managed to produce growth
rates that are the envy of the world. Or, a
variation on the theme: Reducing poverty is a
more important "human right" than voting in
elections, or Asian leaders have a "social
contract" with their people by which high
growth gives autocrats a cushion not only
against outside complaint but internal dissent.
If the "Asian miracle" sounded too good to be
true, that is because it was. The Southeast
Asians adopted what were conventionally
perceived to be the right economic policies:
low taxation, high savings, openness to trade
and foreign investment, heavy investment in
education, capital spending to develop
infrastructure and modest, strategic government
intervention in key sectors of the economy.
But the impressive growth rates masked
underlying, fundamental problems --
environmental neglect and degradation, rampant
corruption at the top, weak and unregulated
financial and banking systems, and a
dangerously widening gap between the wealthiest
beneficiaries of the boom, mainly in the major
cities, and the vast majorities of the rural
poor.
A few problems stand out that should have been
warning signs. Most of the countries kept their
currencies artificially pegged to the U.S.
dollar way too long. The policy helped their
exports sell cheaply on world markets when the
dollar was weak. But as the dollar strengthened
in world markets, the Southeast Asian exports
became less competitive.
Countries that prided themselves on education
are now also being slammed for neglecting it;
they passed stage one, extending literacy to
their populations, but they failed the more
advanced test of training enough skilled young
people in the higher-level technical fields
like engineering. As a top World Bank official
said here in Hong Kong last month, "We've
always applauded East Asia for literacy, but
the problem is in vocational education and
higher education. You can't rely on low-wage
labor as an engine for growth any longer."
Nor did regional economic planners count on the
increased competition from mainland China, with
a supply of cheap labor far greater than
Southeast Asia's. The region's slump in exports
almost directly correlates with China's rise as
an export competitor. And China wisely floated
its currency, the yuan, in 1994.
Traditional Asian values as I understood them
meant thrift, hard work, high savings and
respect for family. But returning to Asia in
early 1995, after four years away from the
region, I found a lot of that had changed.
Southeast Asians in the cities were in the mad
grip of conspicuous consumerism -- new designer
boutiques in newer and larger shopping malls,
Mercedes-Benzs and BMWs clogging the streets,
cellular phones as permanent attachments on
designer belts and cognac as the drink of
choice. On Bangkok's notorious Patpong, the
red-light strip of hostess bars, even the
prostitutes now had the most modern Ericsson
and Nokia cell phones shoved into the back
pockets of their tight jeans.
When I lived in Manila, from 1986 until the
fall of 1990, I rented an apartment on Roxas
Boulevard overlooking Manila Bay for about $400
a month. When I returned in 1995, the same
apartment was being sold as a condominium with
an asking price of close to $1 million.
That apartment inflation underscores a serious
underlying distortion. Much of Southeast Asia's
miraculous boom was built not on rising
productivity but on simple speculation -- and
property and stocks were the hottest buys.
Instead of gambling on mahjongg and baccarat, a
new breed of urban Asian yuppie in Hermes
neckties and Armani suits was betting on condos
in Manila and Bangkok, or on stock in Hong Kong
real estate firms. There seemed to be no end to
the good times rolling, as long as governments
kept promising the growth rates would keep
going up.
A Malaysian friend -- a longtime journalist who
lived in the United States and now works with a
Kuala Lumpur think tank -- told me over lunch
recently how the region's speculative boom and
the profligate spending of the mostly young
beneficiaries reminded him of his time in the
American South, when the Reagan boom years gave
way to the savings and loan crisis.
"What's happening in Asia now happened in the
U.S. in the '80s -- the materialism, the
consumption, the S&L crisis," he said. The
S&L's got a multibillion-dollar congressional
bailout, but as my Malaysian friend put it;
"Here, the governments can't bail out the
banks, so we need the IMF.
"It was all based on sunset industries," he
told me. "There was no productivity increase,
no innovative ideas. Now the chickens are
coming home to roost. The U.S. went through
that and came out a lot stronger -- the
downsizing came in. And you wrung the fat out
of the economy and repositioned yourself for
five more years of growth. We, too, are going
to come out of this stronger than ever. This
forces you to make changes you had to make,
anyway."
Therein lies the real challenge facing a region
-- and a generation -- now absorbing the shock
of its first major economic slowdown in a
decade. The current crisis is a slap in the
face, but also a potential opportunity, if
Southeast Asians and their leaders will grab
it.
My bet is that Southeast Asia will emerge from
its current crisis stronger. The countries of
the region are at peace with each other.
Internally, they have moved beyond the
debilitating ethnic and linguistic divisions
that still bedevil much of Africa and have left
that unfortunate continent on the sidelines of
global economic advancement.
Asian governments might now begin to bring some
order to their messy financial systems, by
bringing in the kind of regulation that would
have prevented the Thai finance institutions
from becoming so overextended with bad loans.
The catastrophic "haze" -- a euphemism for
plain old smog caused by the burning of
September and October -- could force
governments to place more emphasis on
environmental concerns.
They might also now take a hard look at the
corrosive problem of corruption, which is a
significant impediment to private investment
and tears at the social consensus needed for
sustained development. Some economists might
argue that a certain measure of corruption is
tolerable in a fast-growing economy. But at a
time of economic retrenchment, people will care
when it is the son of a president or prime
minister who gets a lucrative government
contract with no competitive bidding.
The economic meltdown, if it continues, could
also have profound implications for the nascent
forces stirring for more democracy in some of
Southeast Asia's more closed and authoritarian
regimes. With economies falling, longtime
autocrats, such as Suharto and Lee Kuan Yew
have lost some of their shield of
invincibility. The so-called social contract --
"let us rule, we'll make you prosperous" --
could begin to erode under the pressures of
falling incomes.
A decline in living standards could even begin
to shake the comfortable middle class in places
like Jakarta out of some of its political
complacency, and lead to popular demands for
more responsive governments. It already has
happened in Thailand, where the parliament was
forced by public pressure to adopt a new
"reformist" constitution aimed at shaking up
the old money-dominated political system.
Or, instead of making the needed adjustments,
leaders may lash out at perceived outside
"enemies" -- and that means the West.
Malaysia's Prime Minister Mahathir has already
led the charge, with his verbal broadsides
against currency speculators and the Western
media. "People will start looking for
scapegoats," said Michael DeGolyer, a political
scientist at Hong Kong's Baptist University.
The danger, he said, is that some Asian leaders
may move from a doctrine of "superiority" to
"insularity." He added, "Neither of those is
going to work."
I'll put my money on Southeast Asians making
the right decisions, since pragmatism and
flexibility have proven two hallmarks of this
dynamic region.
Southeast Asia should bounce back. A region of
high-growth rates coupled with transparent,
responsive governments, free of corruption and
friendly to the environment -- now that would
be a true Asian miracle worth emulating around
the world.
Keith Richburg, based in Hong Kong, covers
Southeast Asia for The Washington Post.
CHRONOLOGY OF CRISIS
Thailand, Malaysia and Indonesia -- not long
ago considered "underdeveloped nations" -- have
been among the fastest-growing economies in the
world during the past decade. But the rapid
growth was based on weak foundations, such as
inadequate supplies of skilled workers,
overborrowing by companies, bad lending
practices by banks, overpriced real estate and
artifically maintained exchange rates designed
to make products cheaper in export markets.
The boom started becoming a bust in 1996 and
early 1997, as some of these weaknesses came
home to roost. As the dollar strengthened,
Southeast Asian products became more expensive
abroad, hurting exporters. As the economies
weakened, businesses could not pay debts and
banks were saddled with bad loans, especially
in Thailand. Investors -- including
international currency speculators -- were
losing confidence in the region and began to
sell, driving the value of currencies and stock
markets disastrously downward.
Thailand, the Philippines and Indonesia have
received assistance from the International
Monetary Fund (IMF). Malaysia is promising
reforms to restore confidence.