Political Ripples in Southeast Asia
International Herald Tribune
October 1, 1997
Philip Bowring

The currency crisis in Southeast Asia may have peaked, but watch for the political ripples. The links between political patronage and business are so strong in several nations that severe private-sector problems tend to have political implications. The beginning of Ferdinand Marcos's demise can be dated from the time when the economic system became unable to keep all his business cronies afloat. At a less obvious level, the intensity of Malaysia's late-1980s political infighting had its roots in the preceding economic boom and bust.

The Thai Parliament's vote last week for sweeping constitutional changes can be seen as one early (and beneficial) ripple. Though such reform has been on the agenda for a long time, the vote was a direct result of the weakness of the current Chaovalit administration and the reputation of its predecessor for combining incompetence with corruption.

The changes are against the interest of most government ministers. They aim, inter alia, to strengthen political parties, bring more technocrats into government and reduce incentives for vote-buying and ministerial corruption.

Much may yet happen to dilute the changes. Some, anyway, are novel and amount to a curious hybrid of a parliamentary system, with a partial separation of legislative and executive authority. But overall they will tend to concentrate as well as reduce the commercial rewards of political power.

Otherwise, the political impact of economic turmoil on Thailand may be less than assumed. Given its multiparty system and the influence of provincial business interests, it is quite different from its neighbors. Patronage is widely dispersed, and the central government exercises far less influence over most business decisions than elsewhere. Government may often have been incompetent and venal, but its reach was limited. Thus, though individual politicans/businessmen have done well from the system, it is much harder to find examples of certain big groups being consistently favored.

The Thai boom created many new rich, and the cost of the bust will also be quite widely dispersed. It is hard to pin blame on a small clique.

In Indonesia, and to a lesser degree Malaysia, however, much more power has been wielded by central authority for the benefit of family members or politically well-connected groups. Their identities are well enough known, and in many cases they control publicly listed companies whose operations are reasonably transparent.

However, the finances of individuals behind groups that have expanded rapidly on the back of patronage are coming under closer scrutiny in the aftermath of devaluation and the prospect of lower economic growth. Their position will not have been helped by the recent eagerness of foreign banks to make huge offshore loans to the politically well connected or to believe in the more extravagant myths of the Midas touch of overseas Chinese.

If at this juncture increasingly scarce resources are going to be diverted to help those who may be least deserving, the dangers of political backlash are correspondingly increased.

Already Indonesians are talking more openly of the impetus that the economic situation should give to political change in the run-up to the new presidential term next year.

Previously, the issue was how to handle eventual political change without damaging the economy. Now the question is: How much damage is political patronage wreaking on the economy?

In Malaysia, criticism is more directed at Mahathir bin Mohamad's handling of the current crisis than at the patronage system per se, from which all parties and factions within the National Front coalition have benefited. The currency and stock market may yet recover to levels that will enable individuals and groups to weather the storm. There may anyway be enough strong companies to bail out the weak. The reckoning is probably a year away.

At the macroeconomic level, Indonesia and Malaysia are in better shape than Thailand. But let no one underestimate the scale of private-sector losses (for foreigners well as locals) resulting from the region's asset market and currency falls.

The more political patronage was the source of profit, the more intense the infighting will be over the distribution of losses. From that perspective, Thailand may be relatively better placed than is supposed.

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