How SE Asian economies should be rebuilt

By Mike Yeong

SINGAPORE (JP): After the worst is over, the governments of Southeast Asia, especially those hardest hit by the financial crisis, will have to quickly get down to the task of restructuring their economies. At the moment it appears the top restructuring priority is the banking and financial sector. This is understandable because affected countries must first attract back the foreign funds that fled the region when the crisis broke.

Although there is much talk of greater transparency and accountability in the financial sector, the more important lessons to be learned from the crisis are not being discussed openly in the mainstream media and may have been overlooked altogether.

One of the most crucial lessons to have emerged from the crisis pertains to the lop-sided development prevalent in some Southeast Asian countries. Like in other parts of the world, the governments of Southeast Asia invested heavily in export oriented industries concentrated mainly in urban areas.

In Indonesia, investment was focused on Java, in Malaysia, the Federal Territory, and in Thailand, the Bangkok metropolitan area. Rural areas in these countries remain undeveloped or underdeveloped as a result, a phenomenon which came about as a result of governments equating industrialization with development.

People from rural areas are attracted to urban centers by the availability of jobs. However, when economic difficulties strike, the first people to lose their jobs are often migrant workers. Some then return to their villages, where unemployment also awaits.

Thousands of farmers recently marched from North East Thailand, the poorest part of the country, to Bangkok in protest at neglect by the government. Leaving aside questions of whether the protest was organized by opposition political parties, the incident provides a good example of how the unequal development of recent decades has created political, economic and social problems, all of which have been exacerbated by the financial crisis.

The problem is a serious one for countries with large rural populations such as Indonesia, Malaysia, Thailand and the Philippines. As their economies become more developed, so the divide between urban and rural areas grows.

It is time for Southeast Asian governments to re-examine the notion of industrialization and the broader issue of unequal economic development.

King Bhumibol Adulyadej of Thailand hit the nail on the head when he said in his birthday speech, made shortly after the Chuan government was sworn in, that Thailand should strive for self- sufficiency before pursuing a program of rapid industrialization. Indeed, what is the point of being called a newly industrialized country (NIC) or a developed country when large numbers of citizens continue to live in poverty.

Self-sufficiency does not only mean that everybody has enough food to eat. It also means that every able-bodied worker should have a job.

King Bhumibol's prescription is not confined to Thailand. It is equally applicable to Indonesia, Malaysia and the Philippines, which face a similar situation -- a heavy concentration of economic activity in urban centers and an underdeveloped countryside containing the bulk of the population.

The financial crisis lead to large scale bankruptcies and the closure of many factories. As a result, a large number of workers, many of whom were rural migrants, lost their jobs. Some returned to their villages to try to eke out a living, while others remained in cities and tried to find new jobs. The desperate turn to crime and the angry demonstrate in the street, placing an additional pressure on the system which already has to cope with myriad social, economic and financial problems. The strain placed on all parties sometimes leads to violence, such as the recent rioting by illegal Indonesian immigrants being held in detention camps near Kuala Lumpur.

To ensure that such a situation does not recur in the future it is essential that Southeast Asian governments undertake structural economic reforms with a view to developing rural areas in the region.

The top priority for any government is to ensure there is sufficient food for all citizens. In this light it is heartening that Thailand recently offered Indonesia food aid, despite facing severe financial difficulties itself.

Equally important during times of crisis is to discourage the migration of the rural unemployed to urban areas. To achieve this, governments will have to focus attention on rural development programs. While manufacturing sectors can continue to be concentrated in urban centers, serious efforts must be made to unleash the potential of rural areas.

For example, if an entire village or district in West Kalimantan relies entirely on fishing, the government, perhaps with the help of foreign partners, should seek to develop small scale secondary ventures associated with fishing, such as fish meal processing plants. Efforts should also be made to diversify the local economy. This will ensure that if a financial crisis strikes again, the village or district will have a greater degree of self-sufficiency, which in turn will help to discourage the unemployed from migrating to cities and adding to the burden on central authorities.

This type of model can be tailored and replicated in other parts of Indonesia and Southeast Asia. However, of vital importance to the success of any such initiatives is whether or not the central government has the political will to pursue such policies.

Identifying and maximizing the potential of each area in a country is not an impossible task. The World Bank has the technical expertise and could provide the assistance required. In the past, the World Bank showed a preference for funding massive projects, however it now favors assisting the development of small scale entrepreneurial activities of the sort required in the region.

Birth control programs are required to complement economic development, especially in Indonesia which a population of approximately 200 million. Even before the financial crisis, the Indonesian government had difficulty creating jobs for the thousands of new graduates entering the labor market each year. Indonesia's unemployment problem has now spilled over into neighboring countries, particularly Malaysia and Singapore. Both these countries have had to spend large amounts of money on preventing the entry of illegal migrant workers and detaining and deporting those who successfully evaded coast guards patrols, and port and customs officials.

While the main responsibility for restructuring the economy rests with individual governments, ASEAN should also play a role and further funding and expertise could be obtained from the World Bank and the Asian Development Bank (ADB).

When the worst has past, an ASEAN Summit should be called to discuss the lessons learned from the crisis and solutions to the many problems left in its aftermath.

Less badly affected countries like Singapore and Brunei, which still have large foreign exchange reserves, can play a critical role in helping their ASEAN neighbors. Such assistance is not interference in other countries' domestic affairs, it is merely good neighborliness.

Singapore has recently embarked on a regional drive to this end. So far, investments have been directed towards manufacturing and hotel sectors located in urban areas. Having helped develop Batam and Bintan, it is time for assistance to be directed toward other parts of Sumatra. If Indonesia were to suffer any serious social and political upheaval, Singapore would be inundated with thousands of economic refugees. Helping specific regions in Sumatra become self-sufficient is therefore not only good practice, it is also vital to Singapore's internal security.

With Indonesia lying so close to Singapore it is natural that Singaporean aid be focused on Indonesia. But it must remember not neglect other ASEAN countries, such as Thailand, which also require similar assistance and investment.

Mike Yeong runs a political and economic risk consultancy company in Singapore.