SURVEY: SOUTH-EAST ASIA

The tigers that changed their stripes

Feb 10th 2000
From The Economist print edition

Now that South-East Asia is roaring again, economic reform may be postponed, writes Paul Markillie. But the biggest change of all could be the growth of democracy

APRelaxed about globalisation

THIS is supposed to be the “Asian century”, and already many people in South-East Asia are of good cheer. Among them is Goh Chok Tong, Singapore’s prime minister. The doom and gloom of the financial crisis which began to engulf the region in 1997 has given way to renewed optimism. The decade of despondency that many predicted now seems unlikely to materialise. But it’s not quite business as usual. The crisis, says Mr Goh, has produced “four positive outcomes”: it has speeded up the opening of economies, forced Asians to be more aware of good corporate governance, made the region concentrate on its real competitive strengths, and provided a hard lesson about globalisation. If so, that is all for the good. But this survey is mostly about another positive outcome, the one that Mr Goh left out: the emergence of more open and democratic government.

This is also the one that will make the most difference to the future of South-East Asia. Most people believed that a big reason for the region’s decades of rapid economic growth were its tough, often authoritarian leaders. These strongmen tolerated little dissent, but delivered increased wealth and stability. It was a bargain many South-East Asians were prepared to accept as millions of them were lifted out of the poverty that still haunts many developing countries. But the bargain was also abused by political and business elites, nowhere more so than in Indonesia during 32 years of repressive rule by President Suharto. By the time he was forced to step down in May 1998, a new acronym had entered the lexicon of South-East Asian politics: KKN. In Indonesian Bahasa, it stands for korupsi, kolusi and nepotisme. It hardly requires translation, but corruption, collusion and nepotism are the evils against which all governments in the region are now being judged.

The complexion of those governments is as diverse as the ten countries this survey covers. They are all members of the regional club, the Association of South-East Asian Nations (ASEAN). They range from Indonesia, the world’s biggest Muslim country, to Vietnam, one of the last bastions of communism, Brunei, a small oil-rich Islamic sultanate, and the Philippines, the region’s most raucous democracy. In-between come Cambodia, Laos, Malaysia, Myanmar, Singapore and Thailand. And now there is another place close to becoming a country: East Timor. Amid horrendous violence last year, the East Timorese opted for independence from Indonesia. The territory is now under the protection of the United Nations while it prepares for statehood—although some East Timorese do not want to join ASEAN.

The countries of South-East Asia are home to some 500m people and have a combined GDP of more than $700 billion (see map). Their largely young populations, with large numbers of well-educated and hard-working people, helped to make the region one of the fastest-growing in the world. But rampant KKN, many now think, made the financial slump inevitable. True, there were other flaws, such as poorly developed financial systems, but nobody seemed to notice these as long as South-East Asia’s tiger economies looked like a one-way bet on rapid growth. Besides, until 1997 there was a sense that the economic order was changing; that the West seemed to be in decline, and that the Asian century was about to dawn. All the lines on the flip-charts about business prospects in South-East Asia pointed one way: upwards. No one believed that the boom could stop.

When it did, the region’s self-confidence was shattered. As the value of South-East Asian currencies tumbled, foreigners and locals alike tried to pull their money out, causing fragile financial systems to collapse. Far from being a little local difficulty—a “few small glitches along the road”, as President Clinton initially described it—the trouble spread well beyond East Asia, to Russia and the Americas. For the people of South-East Asia, the worst part of it was western triumphalism. Their economies, which had once been held up as models, were now depicted as fundamentally flawed. Indeed, many in the West seemed to revel in the victory of American capitalism over so-called “Asian values”. Seen from within the region, the crisis looked extremely dangerous, having brought a number of countries to the point of economic collapse and perhaps social chaos. Yet the West seemed to be offering help only grudgingly, showing little concern for growth and stability in South-East Asia. This is a memory that is likely to stick.

In the end the bust proved to be overhyped, just like the boom before it. Last year the region staged a sharp recovery, with average growth of about 3.4%, and some countries doing far better than that (see chart 1). This swift upturn contains its own risk: that many of the promised reforms which governments said they would undertake will not now be completed. This is particularly worrying in the financial sector, with its mountains of debt. Paul Krugman, an American economist and one of the few who were sceptical about the “Asian miracle”, even when Asia was fashionable, reckons there is now no prospect of serious financial reforms. “This crisis has come to an end too soon,” he told a group of Thai bankers last December.

The speed of the recovery has been such that growth is likely to slow, perhaps later this year. If it turns out that countries have indeed failed to put their houses in order, growth will flatten further. Whether the region then heads back into another crisis could hinge on external factors, such as Japan’s ability to revive its own sickly economy or, more important, whether the American economy continues to thrive and suck in imports from the region. The chances are that growth will settle down to a slower pace than the breakneck speed of much of the 1990s. That may be no bad thing.

Nevertheless, the possibility of another financial shock is not lost on South-East Asia’s leaders. They are now trying harder to work together, and to co-operate with their powerful northern neighbours, China, South Korea and Japan. Should there be another crisis, East Asia might well try to deal with it by itself. Eventually such regional co-operation could lead to the emergence of a trading block with enough clout to rival America and the European Union.

More immediately, South-East Asia’s leaders will be trying to ensure that their economic recovery is sustainable. Some of these leaders are not the same ones who held power when the region got into its mess. Indonesia, for the first time in more than 30 years, is now run by a freely elected government, and new governments have taken over in Thailand and the Philippines. Even where there has been no change in leadership, as in Malaysia, there is clamour for more accountable government. Yet the new, more liberal leadership that is emerging will still have to deliver what the old order did: social harmony and increased wealth. The biggest test case will be Indonesia, long the local giant with a defining influence on the whole region. If Indonesia can thrive as a democracy, then South-East Asia’s tigers will really have changed their stripes.

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