Unstable Asia kicks off year of living dangerously

Unstable Asia kicks off year of living dangerously

By Gwynne Dyer

LONDON (JP): The last of Asia's hidden economic time-bombs, in
South Korea's debt-ridden industrial conglomerates and Japan's
secretive banking sector, have now been dragged out into the
open. The global economy will probably ride out the resulting
upheavals without a major recession. But what about Asia's
political stability?

"If this (Russian) government went and the ruble went, you'd
have hyper-inflation, you'd have a closing-up to the Western
world because reform didn't work," said Al Breach of the Russian
European Center for Economic Policy in Moscow. "It would be a
while before you got another set of people prepared to carry out
reforms, and in the meantime things could be very ugly."

"If Indonesia enters a period of serious political
instability, it might derail the whole process (of economic re-
structuring)," said Julio Cesar Parenas of Manila's Center for
Research and Communications, pointing out that President Soeharto
is now 76 and has no designated successor. When power last
changed hands in Indonesia, three decades ago, half a million
people died.

In Taiwan, voters have just given the biggest-ever boost to
the opposition Democratic Progressive Party (DPP), which
advocates declaring formal independence from China. It will
probably win control of the legislature next year -- but the
Communist Chinese regime has always threatened to invade if
Taiwan declares independence. If the Asian economic disaster
spreads into China, the regime might welcome confrontation with
Taiwan to distract citizens from their domestic woes.

In India, the coalition government has just fallen, and the
likeliest beneficiary is the Hindu sectarian Bharatiya Janata
Party. The BJP's anti-Moslem extremists talk openly about
'testing' a nuclear weapon just to overawe Pakistan -- and that
would almost automatically push the Pakistanis into exploding a
weapon too. Welcome to nuclear confrontation in the subcontinent.

Then there's the deteriorating Israeli-Palestinian
relationship, and Iraq, and North Korea, and sundry other
flashpoints around the periphery of Asia. Not all of these
crises-in-waiting are linked to the current turmoil in the global
markets, but synergistic effects could turn them into a real
trend-breaker.

We have now had five or six years of positive synergy. The
fall of Communism in Europe ended the Cold War and facilitated
the spread of democracy elsewhere. Saddam Hussein's invasion of
Kuwait indirectly caused a new Arab-Israeli peace process that
transformed the political climate of the Middle East.
Globalization unleashed an unprecedented wave of economic growth
in most of the larger countries of what we used to call the
'Third World'.

The result is our brave new world of free markets, open
societies, global communications, and (in most places) peace.
There have been political stragglers and economic casualties, but
the world is in better shape than it used to be.

The worry is that synergy may be a two-way street. What if
several things go wrong in Asia at once? Which of them would be
mere local misfortunes, and which combinations might trigger a
slide back into a different and much more dangerous kind of
world?

When you pose the question this way, even contingencies like
a North Korean attack on the South or a renewal of the
Palestinian 'intifada' in the Israeli-occupied territories fade
in importance. Any upheaval that remains confined within one
country, like a succession crisis in Indonesia, is only a local
misfortune.

What really counts, in this context, is Asia's three great
powers: China, India, and Russia. (Japan, though an economic
giant, lacks the other attributes of great-power status.) If
these three powers, or even any two of them, become hostile
toward their neighbors, then the whole world may be poisoned by
the fall-out.

The country least at risk, oddly, is the one with the most
repressive regime. China's non-convertible currency and largely
state-controlled economy insulate it from the pressures that have
forced so many of its neighbors into painful reforms. Reform must
come to the Chinese economy in the end, but it won't be this
year.

It is well that the International Monetary Fund (IMF) does
not have to cope with bailing Beijing out at the same time as it
is dealing with half the rest of Asia. It is certainly good that
the Chinese Communist regime does not need military distractions
abroad at the time when Taiwan is finally democratizing, and
starting to question the old shibboleths about reunification.

Russia is more worrisome, because the whole Yeltsin/Chubais
strategy for ensuring a Communist defeat in the 1999 election
hinges on paying off back wages and getting economic growth
moving by the end of this year. But the recovery depends on
foreign investment and loans, and both are fleeing Russia as part
of the panicky retreat from 'emerging markets' after the Asian
disasters.

To slow the flight, Russia has already doubled its interest
rates, which is killing domestic growth. If the ruble is hit hard
by speculators, inflation will re-ignite. The IMF may soon have
to step in with emergency aid to prevent a fiscal meltdown in
Russia.

That will mean swallowing its principles, for the IMF is
already withholding promised money as a way of forcing Moscow to
get its finances in order, But this is a case where principles
may have to wait: Russia's people have continued to back
democracy and reform through six years of economic misery, but
there probably is a limit to their patience. We don't want to
find out where it is.

Finally, India. Outsiders have no business meddling in the
democratic choices of Indians, even if they choose to elect the
BJP. But if India were to blow off another nuclear weapon, after
abstaining for a quarter-century, it would have a profoundly
negative impact on expectations and behaviors throughout Asia.

The odds are still good that none of these things will
happen, or at least not enough of them to change the
fundamentally hopeful trend of events. But this is definitely
going to be Asia's year of living dangerously -- and the world's.