Many Seem Ready to Trade Some Sovereignty for Increased Stability : Crisis Prompts Asia's Leaders to Bend 
International Herald Tribune
February 9, 1998
Michael Richardson 

Southeast Asia's financial and economic upheaval is persuading leaders in the region to accept the idea of giving up some sovereignty in return for greater stability, analysts said Sunday.

The continuing turmoil is increasing pressure on governments to acknowledge the need for greater transparency and closer policy coordination, even if it means abandoning or modifying long-established rules of noninterference in one another's internal affairs.

The contagious spread of currency depreciation from Thailand to its neighbors since July and the clear evidence that economic and political failings in one country can have serious repercussions on investor confidence in others are prompting members of ASEAN, the Association of South East Asian Nations, to be more critical of one another and to work out new forms of institutional cooperation to handle problems.

The latest such move could lead to the introduction of a single regional currency similar to the euro, which is scheduled to be introduced Jan. 1 in the European Union.

Although many economists remain skeptical that the ASEAN plan will amount to much, the idea has gained impetus in recent days.

Prime Minister Mahathir bin Mohamad of Malaysia said Saturday after meeting his Singapore counterpart, Goh Chok Tong, that they had agreed that ASEAN "should present a united front in dealing with the currency issues and not deal with each one by itself, because then we will not get the full effect."

ASEAN groups Brunei, Burma, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Mr. Mahathir said Singapore had backed Malaysia's proposal for ASEAN members to use their own currency or currencies for regional trade instead of the U.S. dollar and that Mr. Goh had agreed that the region's central bank governors should meet to work out details.

Malaysian officials see the plan as a long-term solution to reduce dependence on the dollar, conserve foreign-exchange reserves and cushion the impact of currency speculation, which they say helped caused the current crisis.

Mr. Mahathir visited Thailand and the Philippines last week and gained support from leaders there for the plan, even though most of ASEAN's trade is with countries outside the region and there is expected to be resistance to any new regional trading arrangement from businesses who prefer to deal in dollars.

Still, there is little doubt about the potential significance of closer policy coordination, even if it is being forced on ASEAN by recent events.

Late last year as their currencies and stock markets plummeted, ASEAN members agreed to join a wider East Asian economic surveillance mechanism linked to the Tokyo office of the International Monetary Fund, although it may be financed and run by the Asian Development Bank based in Manila.

This monitoring body, to be established soon, will coordinate macro-

economic policies of participating countries and exert "peer pressure" on governments judged to be failing to meet certain standards.

"This implies that individual governments will have less independence than before to deal with problems within their own physical borders," said Robert Broadfoot, managing director of Political & Economic Risk Consultancy Ltd. in Hong Kong. "They will have to listen to the opinions of neighboring governments and international organizations more than in the past."

He said this could affect the way even the most sensitive issues were discussed, such as corruption or favoritism in awarding contracts and other forms of government business.

"All of a sudden, issues like corruption are no longer systemic abuses that are no one's business other than the country where the offense takes place," Mr. Broadfoot said. "They have the potential to cost other countries billions of dollars, and those countries will therefore be less tolerant of abuses elsewhere."

Underscoring this trend toward greater candor in dealing with what were previously considered the sacrosanct internal affairs of ASEAN member states, the press in Singapore — a country that has traditionally been wary of faulting the policies of its much larger neighbors Indonesia and Malaysia — printed excerpts Sunday from a speech by Senior Minister Lee Kuan Yew in which he specifically referred to the governments of Thailand, Malaysia and Indonesia.

In the speech, Mr. Lee warned that in an increasingly integrated international economy, countries in the region could no longer ignore the need for reform.

"East Asia's economic miracle had its weaknesses," he said. "In going helter-skelter for economic growth, many governments did not strengthen their banking systems. Had there been adequate legislation and rigorous supervision, the excessive borrowings that went into real estate, the stock market and unproductive industrial expansion would have been noticed and checked before they ballooned out of control. Corruption and cronyism exacerbated these problems."

Mr. Lee said that when the crisis came to a head, for several months political leaders and their officials in the finance and banking sectors refused to accept the market's verdict.

"They did not accept that things had gone wrong and that their weak banking systems and loose credit policies had been at fault," he said. "Their refusal to accept the new realities made investors sell out and cut their losses. This stampede deepened the crisis. Investors lost confidence not just in particular projects or countries but in the entire region."

Mr. Lee said the root of the problems was political.

"Ministers had not heeded the warning signals from the market because they were preoccupied with political difficulties," Mr. Lee said. "The Thais had six governments in five years, and none had the time to attend to the gaping current-account deficits. Malaysian Prime Minister Dr. Mahathir condemned foreign speculators."

As for Indonesia, Mr. Lee said, President Suharto "thought that he could ride out this crisis as he had ridden so many others in the past 30 years."

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