Asia braces for unrest as turmoil spreads

Asia braces for unrest as turmoil spreads

By Sarah Davison

HONG KONG (Reuters): Asia's economic turmoil is threatening to spill over from the financial markets to the streets, with many analysts predicting outbreaks of violence and nationalism as the crisis intensifies.

Social unrest was now considered an almost inevitable adjunct to the region's economic distress, with currencies plunging ever lower, economies in recession and labor unions gearing up to protest against apparently externally imposed austerity.

"Political tension is the issue," said Marshall Mays, strategist at Nikko Research Center.

"Balancing fiscal policy and monetary policy is something the technocrats are more or less up to. Handling the communication process as you do that...is a little bit more difficult," he said.

And Asia's lack of experience with economic downturn was about to become a major problem for governments used to taking credit for strong economies rather than accepting blame for austerity, said Mays.

Violence was predicted in many countries, particularly those already under political stress and facing high unemployment. "At one time, they had secular hope -- hope that the secular forces, the market, would improve their lives," said Michael DeGolyer, political analyst at Hong Kong's Baptist University.

"Now they're going to feel betrayed by the market, that foreigners somehow oppressed them. We have to remember, Asian nationalism has always been very profound, almost vigilant."

The Korean peninsula topped the list of trouble spots. With North Korea gripped by famine and South Korea on the verge of default, the entire peninsula was now unstable with strategic implications for the globe.

"Korea has a long history of xenophobia. They are much more extreme than nearly any other country in Asia. That is the one that is most of a worry," said DeGolyer.

"The whole of society -- dissidents, the middle class, workers, students -- they could all tell the world to go to hell, even though they can't, because they'll wreck the place. They are an exporting nation and they must have external ties."

More than 1,000 angry protesters staged rallies in downtown Seoul on Saturday, demanding the government renegotiate a record International Monetary Fund aid package and punish officials for driving the nation to crisis.

The prospect of widespread job losses as conglomerates and banks collapse, apparently on Western orders, was expected to prompt violence in a nation known for rioting. There was also implicit tension in a request for aid from arch-rival Japan.

Next on the list of trouble spots was Indonesia, where rumors about the health of President Soeharto, 76, caused the rupiah to fall by almost 11 percent on Friday.

Although the government stressed that Soeharto was in good health, markets panicked after he canceled a trip to Malaysia, raising the prospect of a sick leader and no obvious successor.

Soeharto was formally sworn in as President in 1967 and has ruled longer than anyone except Cuba's Fidel Castro, managing to hold together one of the world's most populous and restive nations scattered across a vast Asian archipelago.

Political succession has traditionally been a problem in Asian countries, but confidence has been restored by the resolution of the region's biggest succession uncertainty -- China.

But China remains a wild card, and Asia's financial crisis could put the brakes on the Communist giant's plans to privatise industry, with state leaders opting to delay the social upheaval from rampant unemployment associated with wide-ranging economic reform.

Asia's biggest economy, Japan, has too many troubles of its own to provide much regional leadership, analysts said. Japanese banks were suffering liquidity crises and were in no condition to lend to the region.

All these tensions made the future of established elites tenuous, said Chris Tinker, economist at ING Barings. "It is perhaps no coincidence that Asia's current crisis coincides with similar cross-roads within the political and corporate systems of much of the region," he wrote recently.

"The socio-political implications of the wide-ranging shifts in power and control that could potentially flow from the widespread financial sector overhauls now being demanded are profound for many of Asia's political systems."

But not all is doom and gloom, say some analysts, and elections scheduled for next year in Hong Kong and the Philippines are expected to go well.

"I think the political problems of Asia are usually overstated," said Jake van der Kamp, strategist at ABN AMRO. South Korea, Taiwan, the Philippines and Thailand are full democracies, while partial democracy holds sway in Malaysia, Indonesia, Singapore and Hong Kong, he said.

"What does tend to happen is that people in Asia tend to elect a strong man, and a strong man tends to assume more power when in power, and push people into voting for them," said Van der Kamp.

"But this is what the people accept... You need strong person in government. If you do not have a strong man, civil war is the result. And the history of Asia indicates that (is true)."

But how well existing strong men hang on to the reins of power while their citizens become poorer remains one of the most urgent issues associated with the crisis.

Only one thing is certain, Tinker said.

"The Asian landscape will be a very different place as we enter the next century."