ASIAN POLITICS: East Asian crisis

Index on Censorship, April 1999

East Asia: The Price of a Miracle

By Salil Tripathi

Early 1999. A young Dayak, barely out of his teens, is seen walking the streets of Ambon, a town on the island of Borneo, casually waving a prized trophy in his hands. A friend walks behind him at a respectable distance, grinning sheepishly. A group of teenagers look at the boy, half in awe, half in fear. At the sight of a photographer, the boy's face brightens up, and he holds up his trophy.
It is the head of a man, eyes closed, the blood still dripping from the severed neck. The ghoulish image takes us back to a time when Borneo was famous for its head-hunters who silently stalked their victims and, with one sharp stroke of their ilangs, decapitated their target. The head was their trophy.

At the end of the century, this young man is playing out the macabre drama, walking with the head of a man identified by the news agency simply as `Madurese' – a victim without a name, a victim solely because of his ethnic origin. He was probably one of the thousands of victims of former President Suharto's forced transmigration policy that moved vast populations from the densely populated island of Java to the less populated regions of Indonesia, with perfunctory regard for local culture, customs or practices.

Suharto ruled this archipelago of 17,000 islands with an iron hand for 32 years; with his departure, the situation has changed radically. The atavistic past, out of which Suharto was supposed to have lifted the country and forged the disparate elements swimming between the Straits of Malacca, South China Sea and Australian continent into a united, modern nation, is returning to haunt Indonesia. The ritualistic violence reminds us that the impact of three decades of pembangunan, or development, remained superficial.

Late 1998. In Kuala Lumpur, the state-controlled media launches an open season against Anwar Ibrahim, until early September the deputy prime minister of Malaysia. Prime Minister Mahathir Mohammed goes on television to describe in purple prose what he claims are perverse sexual acts by Anwar. He uses language that would make a truck driver blush. Weeks later, Anwar, who could once be seen addressing the World Economic Forum and the annual meeting of the International Monetary Fund, sits and grimaces in a crowded courtroom as state prosecutors show the presiding judge a large mattress. The prosecutors want to prove that Anwar had illicit sexual relations with men and women. If the allegations are true, it's the end of Anwar's public life. But the state's case has holes; more than two-thirds of the way through the trial, the state's prosecutors amend charges; and the judge allows them to do so, lowering the burden of proof needed for a guilty verdict.

Mid-1998. Under a half-built flyover in downtown Bangkok, a young man gathers his family and sets out for a soup kitchen run by the church. Thailand hasn't known social welfare, and the new underclass created by the regional economic crisis has become the responsibility of voluntary organisations. Nearby, in the coffee shop of a five-star hotel, Banthoon Wongbanthoon talks about his life. A young finance manager at a bank in Thailand, Banthoon didn't quite fall on to the streets, but he, too, has the taste of misery. When the government closed 56 finance companies on the instructions of the International Monetary Fund, Banthoon lost his job. He took the first couple of months as a well-deserved holiday, but later found that jobs were elusive. For weeks, he went with his young daughter to an impromptu flea market to sell toys, leather goods, anything he could acquire cheap and sell for a little more. `Now I know the value of my family: it is the only support-system I have,' he says.

Early 1998. In downtown Seoul, thousands of retrenched workers from a Korean company that has gone bust gather on a busy autumn morning. They get hold of a US automobile. One spray-paints `IMF' on it; another unfurls a banner reading `Down with US [sic]'; the rest of the men bring out their tools and start to pound the car, smashing it to smithereens.

Thus has Asia changed in the last two years. As the economic crisis shows no signs of abating, politicians who've survived are taking on rivals; people are turning on their old, imagined enemies and discovering that the only people who'd stand by them are in their immediate family; and the USA and the West emerge as the most visible target of their collective ire, in their inability to comprehend the vast changes wrought by globalisation.

The Asian financial crisis is a defining moment for the world's most populous continent. Having taken for granted that the region would continue to grow, endlessly, at the rate of 8-10 per cent a year, it now finds itself stopped in its tracks. For the first time in a generation, citizens of quasi-capitalist East Asia are getting a reminder of what poverty and deprivation are all about. Their dream homes are half complete, their cars are being repossessed, the stocks of companies in which they invested are worth little, the jobs they thought were theirs for life are vanishing and their grocery bills shoot up each time their currency lurches downward. Shops on the streets of Bangkok, Hong Kong, Jakarta and Singapore are offering incredible bargains at closing-down sales, thrift shops have emerged, pawn brokers are back in business and loan sharks are hammering the doors of the indebted.

The crisis can change Asia and its politics fundamentally. But in which direction? According to one scenario, people will demand greater rights and change governments peacefully as Thais and Koreans have done and as Indonesians may do this year. A more pessimistic view sees the old order ruthlessly cracking down on dissent and the region turning its rage against the West.
The austerity programmes imposed by the IMF have changed the lives of many Asians: they are intrusive; the demanding bankers are all western; there is growing concern and anger against the Wall Street-Treasury consensus that is demanding rapid financial reforms in economies that have, in some senses, yet to make the transition from feudalism to the modern era. The West's demands are seen as arrogant. One Chinese-Indonesian businessman, looking out of his window at the bleak landscape of stalled construction projects, exclaims: `This is a White-Jewish conspiracy to prevent the rise of Chinese capital.' It is a sentiment that not just Mahathir, but even some taxi drivers in Kuala Lumpur, would approve.

Asia's economic debacle has altered the way the region views itself. It is less confident, less arrogant; has lost some of its swagger. And it is desperately seeking the way out, so that the glorious days of eight per cent growth rate can return. From being a region of export-oriented, outwardly focused, investment-friendly economies run by conservative, largely pro-West but authoritarian dictators, Southeast Asian states have suddenly discovered that a decade's hard work has evaporated.

In the go-go years of the mid-1980s to mid-1990s, a vast industry had emerged that exoticised the Asian way of doing business and mesmerised the West with terms like `the bamboo network' and guanxi (`connections'). Leaders like Singapore's senior minister Lee Kuan Yew and Malaysia's Mahathir lost few opportunities to lecture the West about the inevitable rise of the Asian century. Through honesty, hard work and sound family values – which read suspiciously like good old Protestant work ethic – coupled with emasculated unions, strong doses of authoritarianism and open economies, East Asian countries had created a unique blend of Keynes, Lenin and Friedman, which they named `Asian' – or more recently Confucian – `values'.

The social contract with the people was simple: you forget political rights, we'll keep your rice bowl full their leaders told them. Respect authority, respect the elders, follow the leader. For a while, the model seemed to work as year after year economies grew at gravity-defying rates and the people didn't complain: supermarkets were full, shopping centres offered great deals, and the American Dream of cars, garages and washing machines for all was fast becoming an Asian middle-class reality. Western businesses drooled at the prospects of selling thousands of cars, millions of jeans and billions of deodorants to the world's largest market. Organisations like the World Economic Forum and the Heritage Foundation rewarded East Asian states by praising their `competitiveness'. Western magazines published awe struck articles about Asia, and businessmen routinely placed China, along with other East Asian countries, at the top of their investment destinations.

There was one fundamental flaw in the Asian model: the `father-knows-best' policy on which it was based. One economist astutely described it as `binge capitalism with socialist characteristics'. According to Ajay Kapur of Morgan Stanley, who coined the phrase, Asian governments wanted to have their noodles and eat them. They wanted the flexibility of the open capital account and the certainty of fixed exchange and interest rates. The tension had to give and, in July 1997, the party came to an end.

When panic-struck bankers noticed that company after company and country after country in Asia owed far more to overseas lenders than their export earnings would allow them to repay in the year, serious doubts of their ability to service their debt were raised and creditors began to call back their loans. According to Pradumna Rana, senior economist at the Asian Development Bank in Manila, five Asian countries – Indonesia, Malaysia, Thailand, the Philippines and Korea – suffered net private outflows of US$12 billion in 1997 compared to net inflows of US$97 billion the year before. `This sharp reversal by US$109 billion was about 11 per cent of their combined gross domestic product, perhaps the largest such reversal in recent economic history,' he says.

The shock was severe. Vacant offices, unoccupied apartments, mothballed factories and a vast surplus capacity of cement, chemicals, cars and computer peripherals transformed the region into an economic wasteland – and changed the Asian social contract.

The worst manifestation of this is in Indonesia. As the country teetered on the brink, old animosities resurfaced. Wealthy Chinese-Indonesians, who many in Indonesia believed had profited unjustly at the cost of pribumi (so-called native Indonesians) were particular targets. When the Suharto regime collapsed, the electronic supermarket of Glodok, run primarily by Chinese-Indonesian businesses, was gutted. Dozens of Chinese-Indonesian women were raped. Businesses owned by Suharto's family were also targeted by irate mobs. Later, violence spread through the provinces and rival ethnic groups settled scores against one another.

Although the Thais have accepted the downturn more stoically, even there the need to establish a safety net is paramount. But such safety nets cost money, and Asian governments have taken enormous pride in the past in running fiscal surpluses year after year. In Thailand, the Asian Development Bank has earmarked US$1 billion to set up a social safety net that senior bank officials admit will cover at most 300,000 people, less than 10 per cent of the newly unemployed. In Indonesia, similar programmes to keep children in schools will help only a small fraction of the newly impoverished.

How long will Asians take their downfall stoically? Some people have already raised their voices. A former political secretary of Anwar wants to establish a movement for greater democracy in Malaysia, and although Anwar has been vilified in the state-owned media, cable channels show foreign broadcasts that report the events fairly. Mahathir may have banned government offices from subscribing to some foreign journals, but many publications are accessible through the internet, and there are dozens of web sites supporting Anwar. In Indonesia, too, there are many web sites offering alternative viewpoints on Indonesian politics, some of which have been accused of making alarmist claims and propaganda. In one such case, a site displayed fake pictures of raped Chinese-Indonesian women.

Social tensions will clearly increase and scapegoating of minorities will rise. This has been most brutally demonstrated in Indonesia, but in Malaysia too, foreign workers have been sent back home and thousands of Indonesian refugees refused entry. Even in the calmer environment of Singapore, a vigorous debate questioning the government's policy of keeping its doors open for foreign talent – expatriate professionals – at a time when locals are losing jobs, is on. Koreans, who were habitual shoppers on overseas trips, have stopped buying foreign products for their loved ones back home.
As Asia comes to terms with years of no, or slow, growth, it will have to accept increasing disparities of wealth. Once again, Indonesia shows that income disparities have in fact widened in the 1990s. Asian leaders have often criticised the `welfare queens' of the West, and warned the local population against entertaining thoughts of a welfare state. But while western critics of welfare have at least seen the excesses welfare can breed, the overzealous Asian critics have yet to see even the most basic forms of welfare implemented in the region.

Setting up a welfare system, as understood in the West – now considered necessary by the World Bank and even the IMF – will demand more money than is available and fiscal deficits, a dent in the much vaunted savings rate of Asia. Resources will get scarcer and the cost of capital more expensive. One positive result will be fewer new factories; the industrial surplus will also get absorbed. If they want to jump-start their economies, Asia's leaders will have to let foreign investors in to buy promising companies, a difficult balancing act given the rising resentment of their people against the resurgence of the West.

It will be for the new investors, the new businesses, the new expatriates to demand of Asia the kind of openness they are accustomed to elsewhere. There are enough voices within Asia who believe that the region needs more, not less, transparency; Malaysia's Anwar Ibrahim, Aung San Suu Kyi in Burma, Korea's Kim Dae Jung, Joseph Estrada in Manila, Chee Soon Juan in Thailand and
Indonesia's Amien Rais, a possible presedential candidate in its next election are all seeking greater openness and freedom.

East Asian leaders' traditional view had been that democracy hinders growth. They pointed to the democracies of South Asia to show that democracy does not go hand in hand with prosperity. Despite regular elections and transparent politics, India had not registered the kind of growth that East Asians took for granted.

But that may no longer be the case. A study by Jardine Fleming, a Hong Kong-based brokerage firm, shows that between 1990 and 1999, four South Asian countries – India, Pakistan, Sri Lanka and Bangladesh – will grow, annually, by one percentage point more than four Asian states – Indonesia, Malaysia, Thailand and the Philippines. The World Bank, too, has forecast that South Asia will grow faster than most regions in the world.

If we apply Nobel Laureate Amartya Sen's study of famines to the Asian crisis, perhaps this was to be expected. After studying the 1960s Indian famine and that which accompanied China's Great Leap Forward, and noticing that far fewer Indians died than Chinese, though the Indian famine was worse, Sen concludes that democracies are the best antidote to famine. Democracy, he argues, demands openness; it allows distress signals to be heard faster. India's former finance minister, Manmohan Singh, used to say something similar: since India is an open society its weaknesses are more visible. In Thailand, in Indonesia, in other parts of East Asia, distress signals were muffled and, when they did manage to be heard above the chorus of praise for East Asia's miracle, were either silenced or simply ignored. (see p140-142).

Now that the weaknesses of the opaque East Asian states have become visible, the distress signals are bright and sharp. Demands for greater transparency have become a useful mantra for economists, politicians and editorial-writers with the wisdom of hindsight; the World Bank and western banks also think it a good idea.

In a more open Asia, growth may be slower but it will be on a firmer footing and more durable. Bankers, too, will be better able to recognise when economies are weakening, when deals are not being awarded fairly, when markets are showing signs of stress. It may even be possible to avert the kind of colossal disaster that accompanied the flotation of the baht. And that would the real miracle, one of which Asia could be proud.

Salil Tripathi was regional economics correspondent for the Far East Economic Review until January 1999.