Asian economic crisis tears at political stability

Asian economic crisis tears at political stability

By Andrew Browne

BEIJING (Reuters): North Korea lobs a suspected missile over Japan into the sea.

Violence flares in Cambodia, where rival demonstrators battle with guns, chains and slingshots.

In Malaysia, Prime Minister Mahathir Mohamad dumps his heir- apparent Anwar Ibrahim amid accusations of sexual misconduct. And Chinese businesses are torched in Indonesia, a potential ethnic and religious powder keg.

India and Pakistan add a nuclear arms race to a territorial dispute that has taken them twice to war; Iran masses troops on the border with Afghanistan.

Myanmar cracks down hard again on the democratic opposition. As much of Asia plunges back into poverty, old political tensions are crackling again and new rifts opening, tearing at the stability that once underpinned growth and raising questions about whether the region's economic crisis can be overcome without serious conflict and bloodshed.

Suddenly, the old political order across Asia is crumbling, according to many analysts in the region.

"Most regimes in the region have derived their legitimacy from economic growth. With the crisis, that bond of legitimacy has been broken," said Alex Magno, a professor of political science at the University of the Philippines.

"The credibility of the 'Tiger economy' model is completely destroyed," he said.

In the go-go days of growth in many parts of Asia, workers were too busy stitching jeans, packing toys and welding ships to pay much attention to politics.

So long as incomes rose, governments felt secure. No longer. The middle classes have seen their wealth evaporate along with shrinking currencies and sliding stock markets. And as jobs vanish, millions of workers have lost everything. Two thirds of Indonesia's 200 million people are sliding backwards into poverty.

Malnutrition is again stalking parts of Asia, sparking food riots. Child beggars are a fixture again.

Not surprisingly, the Indonesian leadership appears most besieged. President B.J. Habibie, who took over when Soeharto was toppled in May after 32 years in power, has recently faced almost daily protests from students demanding his resignation.

All across Asia, cosy politics have become a dangerous game, and leaders are having to scramble and improvise as they react to daily crises.

The free-market Hong Kong government stunned investors by buying up a big chunk of the stock market in a titanic battle against financial speculators.

Malaysia, which prospered as an open economy, is clamping new currency controls.

"Governments are just doing what they can to fill up the moat," said Mark Michelson, Managing Director of Hong Kong-based consultancy, APCO Asia.

"Leaderships are looking for ways to stem the leaks."

In some countries, popular anger at the calamity that has befallen the region has frozen policy making: politicians are terrified of setting off a riot.

The Philippine government shelved plans to introduce a levy on oil products for fear of a public backlash -- even though the additional revenue would have given the government more money to spend its way out of recession.

"We're in a situation where policy choices made on a day-to- day basis could spark large political struggles," said Magno. True, Asia has never been an oasis of calm.

The Korean peninsula has been a flashpoint for half a century, along with the Taiwan Strait.

But in many places, peace had followed economic prosperity. Cambodia emerged from the killing fields era to hold democratic elections; a Moslem insurgency in the southern Philippines was amicably resolved.

Now fresh political upheavals loom, and while the consequences are as unpredictable as the economic typhoon lashing Asia, the causes are startlingly clear.

"You take any economy in the world and rip the guts out of it, you will have to expect political and social fallout," said Mark Beeson, a research fellow at the Asia Research center at Australia's Murdoch University.

"You can't expect people to operate in a rational way," he said.

"If things get worse all bets are off, particularly in a country like Indonesia."

Thailand, where the Asian crisis began a year ago, and South Korea are garnering praise in the West for taking tough political decisions to reverse their economic meltdowns.

Indonesia, for now, remains the top concern.

"Indonesia will cease as a country as I know it," said Bob Broadfoot, the managing director of Political and Economic Risk Consultancy Ltd., a Hong Kong-based think-tank. Broadfoot said a break-up of the archipelago nation was on the cards.

"I do think, unfortunately, that many more people will be killed in Indonesia," he said.

One irony in the current crisis is that the Asian country most tipped to fall apart -- China -- has emerged as a pillar of strength, challenging a politically hobbled Japan for regional leadership.

Despite possibly the shakiest banks in Asia, and some of the region's most inefficient industries, China has been shielded from international financial turmoil because of its closed capital markets.

Taiwan and Hong Kong have been buttressed by China's stability.

Yet Beijing, too, is grappling with a new and hostile environment. A nuclear arms race on its border in South Asia makes Beijing nervous, more so since India cited China as a threat to justify its nuclear testing.

Meanwhile, Iran's armed confrontation with Afghanistan's Moslem Taleban militia, backed by Pakistan, is a new concern for Beijing's rulers, who fear fallout among their own restive Moslem population in the far west.

Not everyone in the region welcomes China's powerful new presence. A strong, assertive China sends shivers through its smaller neighbors.

"If our economies continue to flounder, China will become a strength in the region," said Magno. "It's a very uncomfortable situation for Southeast Asia," he said.

"We are anxious about an assertive China, even though we're looking to China to help solve our problems."