Learning lessons from Thailand
By Aleksius Jemadu and Duncan McCargo
BANDUNG (JP): It makes sense to compare Thailand and Indonesia regarding their respective strategies in dealing with the economic crisis. The point is that there might be some important lessons Indonesia could learn from its neighbor.
Many international analysts argue that compared to other Asian countries, Indonesia has been left far behind in managing its economic turmoil. Not only has its currency depreciated more than other countries', but its economic reform has also been hindered by political complexities, be it student protests, social unrest or other issues. Moreover, even after the new cabinet was established, the Indonesian economy remained as precarious as ever.
If we look at the origins of the economic crisis in Southeast Asia, we can find some similarities between Thailand's and Indonesia's experiences. Crony capitalism, a nepotistic political system, weak financial systems, and excessive borrowing without regard to exchange-rate risks have been widely mentioned as the main factors leading to the economic crisis. It is not hard to find evidence of these political and economic pathologies in both societies.
However, while there is growing concern over the uncertainty of the economic recovery in Indonesia, Thailand has regained international confidence over its economic prospects. When Prime Minister Chuan Leekpai visited Washington recently he managed to convince President Bill Clinton and U.S. businesspeople that under his leadership Thailand's economic recovery would soon take place.
Real political changes are indeed visible in Thailand. The inept government of Gen. Chavalit Yongchaiyudh is long gone, replaced in November by the more respectable leadership of Chuan. Although he is not an economist and does not claim to know everything, Chuan has delegated control of economic affairs to a pair of extremely able technocrats, Finance Minister Tarrin Nimmanahaeminda and deputy premier Supachai Panitchpakdi.
Dissatisfied with some aspects of the original IMF agreement signed by the Chavalit government in August 1997, the Chuan technocrats have been able to renegotiate some problematic parts of the deal. This renegotiation has been expertly handled by professionals, who are well-respected by their international counterparts, without recourse to counterproductive and fatuous nationalist rhetoric.
Painful decisions have been taken to overhaul the financial sector, overruling the special interests of influential bureaucrats and well-connected bankers.
November 1997 also saw a new Thai constitution come into effect, the culmination of longstanding demands for reform of Thailand's pluralistic but sometimes unstable political order. Despite numerous shortcomings, the new constitution is a significant improvement on what it replaced.
Thailand's political and economic problems are far from over, yet the Thai case demonstrates that relatively rapid progress may be made given sufficient political will. This which primarily entails putting the right people into key economic portfolios and letting them get down to work without hindrance. Thus, Chuan has managed to combine political and economic reforms so that international confidence has been restored.
There are some important lessons that Indonesia could learn from Thailand. First, political change is a necessary condition for successful economic reform. The replacement of Chavalit was said to facilitate the workability of economic reform agreed upon with the International Monetary Fund (IMF).
Second, a top leader needs to give full autonomy to his economic team to implement economic reform without structural and psychological hindrances.
Third, in order to restore international and domestic confidence, economic reform must not be piecemeal. It should be comprehensive and impartial in its implementation. All these lessons can be taken as inputs for the Indonesian government in implementing its new agreement with the IMF.
Aleksius Jemadu is the head of the school of international relations at Parahyangan University, Bandung and Duncan McCargo is a lecturer in the politics department at Leeds University, UK.