Commentary: The hurdles that unite Southeast Asian leaders
Bloomberg News
February 22, 2005
William Pesek Jr. 

SINGAPORE Singaporeans are still talking about it: The diplomatic courtship between their leader and the president of Indonesia. It's not what Southeast Asians are used to. Petty squabbles with neighbors? Yes. Hollow pledges of economic cooperation? Absolutely. Grand visions of Asia taking on the West? Oh yeah. Genuine teamwork between leaders? Nope.
 
Yet that is what Singaporeans observed last week when Susilo Bambang Yudhoyono made his first trip here as Indonesian president.
 
Such a display of warmth toward an important neighbor indicates how much has changed in Indonesia since President Suharto was toppled in 1998. Yudhoyono noted that Prime Minister Lee Hsien Loong of Singapore sometimes calls him with barely 10 minutes' notice. It makes the tensions of the Suharto era seem like distant history.
 
In office since October, Yudhoyono also is pledging to tackle some huge impediments to foreign investment: corruption and cronyism. The same vow has come from the Malaysian leader, in office since late 2003, and the recently re-elected ones of the Philippines and Thailand.
 
The common thread is a determination to end the legacy of graft that has left an enduring impression on investors. While Southeast Asia has made progress in rooting out so-called crony capitalism, much remains to be done. That a critical mass of leaders is intensifying the effort is a positive sign.
 
Asian markets, among the world's best performers in 2004, are already on a roll. A new and more transparent leadership could give them additional vigor, lowering bond yields and bolstering stock prices in the years ahead.
 
That is a far cry from the past two years, when a slew of elections, tensions between China and Taiwan and a failed effort to impeach the South Korean president roiled markets.
 
Gone, too, is the controversial Malaysian prime minister, Mahathir bin Mohamad, with his market-shaking comments about currency traders, Jews and Asian neighbors. His successor, Abdullah Ahmad Badawi, worked quickly to present a more investor-friendly face to raise Malaysia's economy to the next level.
 
In Indonesia, an environment overshadowed by Suharto cronies is giving way to a more entrepreneurial climate. It is unclear whether Yudhoyono can clean up an economy that the advocacy group Transparency International lists among the most corrupt. He is saying the right things, though, and investors are responding. Indonesian stocks are up more than 9 percent so far this year.
 
President Gloria Arroyo of the Philippines is promising to tackle tax evasion and swelling government debt. Although Moody's Investors Service last week cut the nation's credit rating by two notches, Arroyo may yet succeed in narrowing the budget deficit that is prompting pessimism among analysts and investors.
 
Perhaps just as important, Asia is increasingly looking inward - not to the West - for solutions to the corruption, scandals and poverty of the past. Leaders are pursuing a policy of Asian self-sufficiency, and bonds are part of it.
 
Prior to the 1997 Asian crisis, policy makers in the region pursued a purely mercantilist strategy of exporting cheaply produced goods to richer nations. They also lived off a high amount of foreign direct investment.

Abdullah, Arroyo, Yudhoyono and Prime Minister Thaksin Shinawatra of Thailand are showing less interest in parking money in U.S. Treasuries, and focusing more on a potential Asian bond market. Such an entity would enable Asia to keep more of its savings at home to pay for infrastructure, education and health care.
 
A regional bond market would also give companies more opportunities to raise capital and deepen transparency. It would lower debt yields in a region that has traditionally paid more to borrow than Western countries do, often from banks rather than from capital markets.
 
Increased foreign direct investment is always desirable, too. Renewed interest among institutional investors is obvious in the rising equity values here. Bolstering the kind of long-term investment in companies and factories that creates jobs and raises living standards is also on the agenda in Southeast Asia.
 
Consider Thailand, which, during Thaksin's four years in office, has shown modest interest in foreign direct investment. The strengthened mandate that Thaksin received in his re-election this month may accelerate privatization efforts.
 
Asia's smaller economies are constantly grappling with how to adapt to China's ascent. Now that a new crop of leaders is on board to complement some of the reform-minded ones already in power, the region's economic revival may prove to be even more sound.

Copyright © 2006 the International Herald Tribune