Asian Crisis and Haze Caused by Same Spark
Remember the haze? Even before the dry season begins, air pollution levels have gone into the hazardous range in parts of Southeast Asia. The Indonesian forest fires currently blanketing Southeast Asia with deadly smog provide a stark reminder of a dark side to the Asian economic "miracle."
Deep currency devaluations in Thailand, the Philippines, Indonesia, Malaysia, and South Korea have been matched by local stock market declines of 20 percent to 30 percent in the past few months. Less attention has been paid to deadly forest fires that shroud much of Southeast Asia in an acrid haze.
However, both situations painfully demonstrate the inability or unwillingness of Asian leadership to manage crises in a decisive and coordinated manner.
Take the failure of the Thai government to first prevent, and then mitigate, the trauma caused by the abrupt abandonment of a pegged exchange rate regime last July.
As early as June 1996, the International Monetary Fund explicitly warned Thailand that it needed a flexible exchange rate to tackle its mounting economic problems. The Thai government ignored this advice, preferring instead to risk further damage to its economy by defending the baht in the forward exchange market. The defense failed, Thailand's foreign exchange reserves were depleted, and the baht quickly lost about 40 percent of its value.
As the contagion spread, regional leaders proved themselves incapable of effective crisis management.
Unlike Indonesia, Thailand and Malaysia failed to take the basic steps of aggressively managing interest rates and waiving restrictions on foreign ownership of stocks. Instead, they imposed a variety of capital controls to halt short selling by foreigners.
Unfortunately, these measures irreparably harmed investor confidence, and were quickly scrapped.
Rather than undertake a critical self-assessment of domestic economic policies, Malaysia's prime minister hysterically ascribed blame to a band of Western conspirators allegedly bent on the destruction of Asia.
The severity and breadth of regional currency devaluations showed how weak ASEAN's mutual commitment to defend currencies really is, despite a series of 1995 agreements to do so.
Why are Asia's leaders so chronically bad at crisis management? Part of the answer is cultural, but also at fault is Asia's political structure, which is geared toward the selection of incompetent, unresponsive bureaucrats.
"Asian values" like face-saving and consensus-building may contribute to regional stability in normal times. In a crisis, such priorities become time-consuming luxuries that cause suffering.
Similarly, the notion of Asian brotherhood can be a useful spur toward greater cooperation among ASEAN members. However, Asians lose when these "family ties" are subverted by political leaders like Malaysia's Prime Minister Mahathir to justify a siege mentality against the West.
This ploy not only provides incompetent leaders with substantial political cover, but also prevents timely correction of fundamental flaws in the Asian economic model.
While political cronyism and corruption are not unknown in the West, these are limited by institutional arrangements designed to ensure that elected officials are held accountable to their constituencies. In much of Southeast Asia, however, no such institutions exist. The ruling elite often muzzles media watchdogs, while electoral rules are manipulated to prevent the emergence of a meaningful political opposition.
In many versions of "Asian democracy," the absence of an effective administrative legal code makes it impossible for citizens to seek judicial redress for grievances against the government.
Even in cases where such access is possible, the lack of true separation of power between the executive and judicial branches of government makes success difficult.
Like the rising tide that invariably raised all ships, Asia's now defunct economic "miracle" allowed its leaders to get by with a minimum of competence and accountability. But that was yesterday.
As the haze that clouds the region eventually lifts, so too should the veil of government secrecy and bureaucracy that made such crises possible in the first place.
* Christopher Lingle is visiting associate professor of economics at the Weatherhead School of Management of Case Western Reserve University in Cleveland. Teresa Wyszomierski is an attorney practicing in New York.