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.