Thailand May Lead Way to Economic Relapse

Confidence in Indonesia’s president, Abdurrahman Wahid, has steadily declined since his October election, and he faces an August showdown with parliament. In the Philippines, President Joseph Estrada faces continued corruption accusations and has pulled the nation’s few resources into an all-out military campaign against Islamic insurgents. In Malaysia, competition from the Islamic opposition has undermined Prime Minister Mahathir Mahathir’s grip on power.

Economic and political instability in Southeast Asia feed upon each other and threaten to send the region yet again into the depths of economic crisis. If Thailand fails to control the declining baht, the Philippine currency is seen as certain to collapse. Indonesia’s economic weakness also threatens to trigger another currency crisis, and Jakarta has asked its neighbors for assistance.

Thailand’s central bank appears strong enough to delay the inevitable temporarily, but it will certainly drag the Philippines and Indonesia with it. Despite Mahathir’s currency controls, Malaysia, too, would be unlikely to avoid a regional relapse.

International Intervention May Not Help

It is equally unlikely that international intervention will create stability. The International Monetary Fund and the major powers can stabilize currencies briefly. But currency instability is a symptom of the problem, not the problem itself. IMF austerity is viewing as leading to social chaos; while lack of austerity is seen as leading to social malaise.

The real issue is how far north the disease will spread. If Southeast Asia moves into crisis, Japan and China will not be far behind.

Asia and the United States now appear caught in a zero sum game, in which U.S. economic strength costs Asia dearly. And as long as Asia inefficiently maintains social stability, it cannot rebuild its economy. The region’s best hope is that the long-term malaise will be just that — long term — and will not turn into another crisis.

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