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 weakened Prime Minister Mahathir Mahathir’s grip on power.
If Thailand fails to control the declining baht, the Philippine currency will certainly collapse. Indonesia’s economic weakness also threatens to trigger another currency crisis and Jakarta has asked its neighbors for assistance. Despite Mahathir’s currency controls, Malaysia, too, would be unlikely to avoid a regional relapse.
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 leads to social chaos; lack of austerity leads 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.
George Friedman, Ph.D., is a best-selling author and the chairman of Stratfor.com, an Internet-based provider of global intelligence headquartered in Austin, Texas.