Market Turmoil Fuels Debate Over Democracy : Crisis Tests 'Asian Values' 
International Herald Tribune
November 15, 1997
Michael Richardson 

Southeast Asia's financial turmoil is providing an acid test for a question hotly debated between East and West: Are liberal democracies, or more authoritarian systems of government, better for sustaining economic growth in developing countries?

"Until Thailand emerged this week with what seems like a somewhat better government, I would have judged that the authoritarian camp had a slightly stronger case so far," a Western ambassador said Friday. "But now I would say that the argument is finely balanced and the jury is still out."

The four Southeast Asian economies worst affected by the plunge in the value of their currencies and stock markets — Thailand, Indonesia, the Philippines and Malaysia — fall evenly between the liberal and strong government camps.

Before the economic crisis, a sometimes bitter debate raged in Asia, and between Asian authoritarian leaders and their Western liberal critics, about whether Asia had certain unique cultural values to help power its rapid economic growth, and which political systems could best sustain that growth.

Yet in Southeast Asia, the financial turmoil has struck economies managed by liberal and strong-arm governments alike, leading officials, diplomats and economists wondering which system will prove best able to engineer recovery.

"Asian values basically meant democratic deficits and economic surpluses," said David Roche, managing director of Independent Strategy Ltd., an investment consultancy. "Now both will move into deficit, and that's tricky. You have political institutions which are pretty immature and party structures that are singularly incapable of debate in many cases." Democracy, Mr. Roche added, is "a great tool for achieving consensus and support for tough policies."

Yet Thailand — which started the region-wide turmoil when rapidly shrinking foreign reserves forced it to leave the baht at the mercy of the market on July 2 — is a parliamentary democracy that many critics say will remain fatally flawed by having too many competing, and often venal, political parties, at least until the new anti-corruption constitution takes effect.

The recently appointed Thai prime minister, Chuan Leekpai, is well regarded for his integrity. But his government, approved Friday by Thailand's constitutional monarch, King Bhumibol Adulyadej, is made up of eight parties.

Christa Marti, an economist for UBS Securities (Singapore) Pte., said that while Thailand's political conditions had improved with the new government, expectations were high — and so were potential problems.

The Philippines has an American-style presidential system of government with well-developed checks on executive power. President Fidel Ramos recently described his country as "one of the few bona fide democracies in the region."

Indonesia and Malaysia are ruled by political groups that have been in power for over three decades.

President Suharto of Indonesia and Malaysia's prime minister, Mahathir bin Mohamad, are advocates of strong government. They say Western liberal democracy is unsuited to their countries because it does not produce the political stability needed for sustained growth.

Yet in the view of many analysts, all four countries face sharply slower growth over the next few years — and in Thailand's case, a recession — chiefly because of policy mistakes.

Thailand and Indonesia sought huge standby loans arranged by the International Monetary Fund in exchange for their agreements on reform programs. The Philippines, too, turned to the IMF for assistance, while Malaysia introduced similar austerity measures and credit curbs to cool its overheated economy.

The question now is which of these four economies will be able to recover with the least pain.

Douglas Paal, president of the Asia Pacific Policy Center in Washington, said that the litmus test of reform in Indonesia was whether the business interests of Mr. Suharto's family and friends shared the pain of the IMF-approved adjustment program.

"By this test, the reform package warrants good marks," he said, referring, among other things, to the inclusion of three banks partly owned by the president's relatives among the 16 closed recently by the government to help stabilize the financial sector.

"Politically, Suharto's dominant position has, if anything, been strengthened," Mr. Paal said. "The financial crisis has increased the establishment's conviction that strong government is needed to deal with the nation's economic problems."

Many analysts said the Malaysian budget introduced last month was not tough enough. But Michel Camdessus, head of the IMF, said Thursday that if all the measures announced in the budget were carried out, Malaysia should be able to "weather the current turmoil."

Jusuf Wanandi, chairman of the supervisory board of the Center for Strategic and International Studies, in Indonesia, said that the key to recovery was not whether a country had a liberal or authoritarian political system.

"Even more basic is whether the government is good," he said. "Whatever its complexion, if the government is bad, there will be abuses, and a lack of transparency and accountability. That kind of regime will never get the economic fundamentals right."

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