In Asia, the Ties That Bind in Times of Crisis Begin to Show Signs of Strain
International Herald Tribune
August 3, 1998
Michael Richardson

Amid the gloom of deepening recession in many East Asian countries, one beacon of hope stands out: Relations between key players in the region, and between them and the United States, remain in relatively good shape, and this should improve prospects for solutions to economic problems, officials and analysts said Sunday.

"Today, the stable and constructive relations between major powers like the U.S., China and Japan provide a favorable context for the region's economic recovery," said Singapore's foreign minister, Shunmugam Jayakumar, after attending a meeting in Manila last week of foreign ministers of the Association of South East Asian Nations and their counterparts from other Asian and Pacific states.

Yet, despite the improvement in ties between Washington and Beijing in the past year since the region's financial turmoil started, the close links between Tokyo and Washington, and better relations between Beijing and Tokyo, officials and analysts agree that the basis for cooperation between Asian and Pacific countries to tackle the crisis is fragile.

They warn that it could easily be upset if Japan, the world's second largest economy after the United States, and a leading source of trade, investment and bank loans for East Asia, fails to live up to the expectations of its neighbors and the United States to revitalize its economy.

"A prolonged, deeper and wider economic recession could exacerbate political tensions both within the region (for instance, between China and Japan) and between regional states and extra-regional powers (for example, China and the United States)," the International Institute for Strategic Studies in London said in a recent assessment of the security implications of East Asia's crisis.

The United States and Japan jointly intervened on world foreign-exchange markets to defend the yen in June after China indicated that it might reconsider its pledge not to devalue if the Japanese currency sank much lower.

Chinese officials renewed their warnings over the weekend on the need for Tokyo to act decisively, while President Bill Clinton of the United States telephoned Japan's new prime minister, Keizo Obuchi, to tell him that Japan's recovery is "critical to the recovery of all of Asia," a White House spokesman said.

"The rest of Asia is on the brink of really serious difficulties," Clyde Prestowitz, president of the Economic Strategy Institute in Washington, told Reuters Television. "If Japan can't get itself fixed fairly quickly, the likelihood is for another round of devaluations in Asia, with devastating effects. We could well see the whole global trading system getting into deep trouble."

Some officials and analysts worry that the political fallout from mass unemployment and social distress in East Asian countries will make it much more difficult to sustain the economic reforms they regard as essential for recovery.

"With the Asian financial crisis, there is a real danger that some hard-hit nations and peoples will lose faith in the principles of economic openness that has served this region so well for so long," said Madeleine Albright, the U.S. secretary of state, in Auckland on Saturday at the end of a week of talks with officials in the region.

The risk of xenophobia and a backlash against globalization is seen as highest in countries such as Indonesia, South Korea and Thailand that have been hardest hit by the crisis. They are getting emergency loans from the International Monetary Fund amounting to over $120 billion, provided they undertake austerity measures and open their markets more widely to competition, both foreign and domestic.

But some other East Asian countries hit by the crisis may also turn increasingly to policies of protectionism and autarky, analysts said.

In apparent justification for such a move, Malaysia's prime minister, Mahathir bin Mohamad, has suggested that Western governments and commercial interests are using the IMF and the crisis in Asia to impose their will on the region in a thinly disguised form of "neo-colonialism."

Transport Minister Ling Liong Sik of Malaysia warned recently that the government might introduce legislation making it compulsory for Malaysian exporters and importers to use the country's ports, instead of shipping about 40 percent of their cargo through neighboring Singapore, which many business executives say is more efficient.

Malaysia and Singapore have also disagreed recently over the terms of official agreements covering the railroad linking the two countries and long-term supply of Malaysian water to Singapore.

"Since the Asian financial crisis began, powerful forces in Malaysia have assumed a puzzlingly aggressive stance towards the rest of the world, despite the fact that the country needs the help of international capital markets," Singapore's Straits Times said Saturday. "Some of its ministers have spoken as though all of Malaysia's difficulties originated beyond its shores. One hopes that Kuala Lumpur's bristling nationalism is only temporary."

Charles Morrison, the head of the East-West Center in Hawaii and editor of a recent study of the Asia-Pacific security outlook for 1998, said that because of the economic crisis, nationalism might rise in some East Asian states. "Weakened leaders or governments may be tempted to blame outsiders or look for outside diversions to deflect domestic criticism," he said.

The study said that there was a risk of increased tensions between Asian countries and the United States over U.S. support for painful IMF austerity measures or American purchases of Asian assets at bargain prices.

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