Is the Asian economic dream lost? Maybe not

Is the Asian economic dream lost? Maybe not

By Michael Battye

SINGAPORE (Reuters): Just a few short months ago, Asian businessmen had no doubts the world was theirs for the taking.

"Invincible, emboldened by success and drunken by growth, we were all the next Masters of the Universe," Singapore businessman Ho Kwon Ping told a recent East Asia Summit in Hong Kong.

"Our self-confidence now seems more like brittle brashness," he said, reflecting on the traumatic economic crisis that began in Thailand and swept through Southeast Asia before knocking at the fortress doors of Hong Kong and Seoul.

Currencies have been beaten down against the U.S. dollar since Thailand effectively devalued the baht in July. The rampaging growth rates of Asia's tiger economies have either already taken a hit or are bracing for one next year.

As a result, investors who had shoveled money into the region for years have fled as fast as they could, leaving Asia's dreams of a Golden Age suddenly looking like a mirage.

But many analysts around the region say there is a gleaming silver lining in a crisis which has obliged Asian governments to face their problems for the first time.

"It's been a shock, and a good one," said Beijing-based analyst Enrique Subercaseaux.

"The days of golf-course capitalism are over," he said, referring to the golf courses which have spread across Southeast Asia like a rash over the past decade or so -- a symbol of non- productive investment.

"Governments are now going to have to concentrate on productive investments and liberalization," he said.

Liberalization will be the key to restoring the dream of an Asian-dominated 21st Century, he and other analysts said.

And the key to liberalization will be pacts like the Asia- Pacific Economic Cooperation (APEC) forum and the ASEAN Free Trade Area (AFTA), they said.

"It's all about momentum," said a Malaysian economist who asked not to be identified. "Don't worry about the rhetoric. Look at the reality. Do you see anyone reversing liberalization? If they were going to do it, the time is now," he said.

"They're not going to do it and APEC and AFTA, as well as the WTO (World Trade Organization) will keep the momentum going."

APEC, which includes giants like the United States, Japan and China, aims at free trade between its 18 members by 2020.

"By then, we should have free trade and investment (in the region)," said a senior U.S. official who asked not to be identified.

"If that doesn't happen, there will be a lot of tension because people would point fingers at each other," he said.

APEC leaders meet in Vancouver this month to set the latest targets for a wide range of economic sectors.

ASEAN, the Association of Southeast Asian Nations, aims to slash most import tariffs to between zero and five percent between its members -- Brunei, Myanmar, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam -- by 2003 at the latest.

Businessman Ho said Asian regional leaders did not have much choice but to pursue free trade.

"Asia's political leaders may wish otherwise, but they can only further liberalize their economies and become truly competitive players in an integrated world economy, or they can follow the Myanmar road to wealth," he said.

Myanmar, one of Asia's richest nations 50 years ago, cut itself off from the world economy in pursuit of the "Myanmar Road to Socialism" and is now one of the region's poorest.

The goals set out by APEC and AFTA are achievable, most analysts said.

"I think the goals are do-able," said Julius Cesar Parenas, executive director of Manila's Center for Research and Communications.

"Despite the crisis, I have been impressed by the strong desire for ASEAN to accelerate its regional integration efforts," he said.

"APEC and the WTO are forcing the less developed economies to concentrate on the areas where they are really competitive and the advanced economies are indeed going to face ever greater challenges from us," he added.

"It's much easier for less developed economies to pursue structural change."

Others held equally rosy views.

"In the medium and long term, I'm still very optimistic," said Sofyan Wanandi, director of the Center for Strategic and International Studies in Indonesia.

"But you have to make a very clear timetable and get the commitments and stick to them," he said.

There is the fly in Asia's ointment: whether Asia's politics will allow full pursuit of ambitious free trade goals or force reversals.

"Protected markets, sweetheart deals, pork barrel politics and all the other nice things that come with cronyism was in large part the secret to their success," said Ho of Asian companies.

"Is there the political will?" asked Bruce Gale of the Political and Economic Risk Consultancy in Singapore, doubting the readiness of some leaders to go through with economic reforms.

"Some could jump either way -- either get things done faster or go back down the protectionist path," he said of concerns in some countries that opening economies could foment domestic strife.

"Look at Mahathir, which way is he going to jump? He's warning developing nations to be careful in how they open their markets," he said of Malaysian Prime Minister Mahathir Mohammad.

Others worry about what will happen when Indonesian President Soeharto, now 76 and with no designated successor in sight, finally cedes control of the sprawling archipelago.

Some fret it could turn into a Yugoslavia or go through a torrid passage of ethnic hatred focused on the small ethnic Chinese population, which is highly influential in the economy.

"If Indonesia enters a period of serious political instability, it might derail the whole process," said Parenas. "But I don't think that is a probable scenario."

China's rapidly growing economy -- and its promises to settle border issues in the South China Sea peacefully -- is likely to be a significant factor driving other Asian economies to freer trade, the analysts said.

Beijing is likely to overcome a dispute with the United States over whether it should enter the WTO as a developed or developing economy sooner rather than later, while its problem with Taiwan, which Beijing regards as a rebel province, will solve itself over time, they said.

The analysts said everyone expected China's economic tsar Zhu Rongji to take over as prime minister from Li Peng in March.

"When Zhu comes in, things will happen very quickly," said Subercaseaux.

And China's huge potential market will become more integrated with the rest of Asia, reinforcing the region's economic momentum, said Parenas.