|The Real Business
by ANWAR IBRAHIM
[from The Asian Wall Street Journal
The APEC Summit in Kuala Lumpur takes place at a critical time for the Asia-Pacific region. A mere 18 months ago, many of those who have gathered for the summit were still lauding the achievements of the "Asian Tigers" heralding the dawn of the Pacific Century. Asia, it seemed, would be the promised land of sustained economic growth.
But the Asian flu has left in its wake economic devastation, shattered dreams and severe social dislocation that will take decades to repair. Indeed, as we stand on the threshold of the new millenium, it seems apt to paraphrase Dickens: The best of times has turned out to be the worst of times.
It is not normal to conduct economic discourse from behind prison walls. But these are not normal times in Malaysia, nor indeed in much of Asia. Detention has its benefits; solitude has given me time to pause and reflect on the reasons for Asia’s economic decline, and consider what remedies may be possible.
Just as Asia’s boom in the last decade was no mirage, there is also no great mystery behind its sudden collapse. The Asian crisis has been debated at great length and its causes are well-known. It turns out that some of the factors behind the success story were the very forces that triggered the crisis. Unregulated flows of capital seeking high returns led to reckless investments, manifested in towering skyscrapers and stratospheric stock prices. Liquidity flowed like hot lava to emerging markets where corporations were hungry for capital at low interest rates. These flows were unrealistically insulated by inflexible exchange rate systems, which pegged the Asian growth story to low U.S. interest rates. This in turn left currencies vulnerable to attacks by speculators and rogue traders.
Yes, there were indeed forces lurking in the shadows, waiting for any opportunity to make a fast buck from betting on the ability, or inability, of central banks to defend currencies. Any reform in the international financial must address ways to combat this menace. But what of the affected countries themselves? Do we not take the individual and collective responsibility for our problems, just as we have taken credit for our successes in the last decade? Were not the countries which exposed themselves to vulnerabilities in their external accounts not indirectly inviting attacks on their currencies?
The underlying problem in Asia is deeper than what is suggested by conventional analyses of boom and bust cycles, or by the criticism levelled at dark forces out to destroy the international financial system. Instead of pointing the finger at speculators and blaming "unrealistic demands" set by international agencies acting as lenders of last resort, Asian nations would do well to put their houses in order first. The international financial system does indeed a new architecture, but structural reforms must begin at home. The place to start is by containing the exuberance of political and corporate leaders for projets that do not add to the competitiveness or well-being of a nation, in particular real estate and oversized infrastructure undertakings.
We in Malaysia are as guilty as anyone else in the region. The frenzied rise of the equity and property markets in the early to mid-nineties spawned an overwhelming desire to outdo the rest of the world in infrastructure development. Barely had the paint dried on the world’s tallest twin towers, when we were starting work on a multi-billion ringgit government administrative centre and a massive hydroelectric dam and laying out ambitious plans for outlandish projects such as the world’s longest city.
Asian nations must firmly commit themselves to wiping out corruption and nepotism. Clearly, many of our problems could have been avoided if there had been greater commitment to eradicating subsidies, monopolies and favoritism. In the case of Malaysia, it is unfortunate that Dr. Mahathir Mohamad, who in the past has lectured the peasantry about their "subsidy mentality", has descended from his pedestal to promote the worst kind of subsidy mentality among his cronies and the super rich. Is Asia, where cronyism is entrenched in many quarters, ready for this sea change towards a more ethical and moral political leadership and better corporate governance? So many vested insterests are at stake. Unless the gale of creative destruction is unleashed on these rent-seeking and parasitic corporate activities, however, the Asian economy will never regain its past vigour. This process of house cleaning, along with the removal of tariff barriers, will serve as the cornerstone for revitalised global trading system and underpin the success of APEC.
This Asian renaissance should encompass not only political transparency and better corporate governance, but also reforms to society and culture, and respect for human rights, the environment and the independence of the judiciary. Without this commitment to these values, debate on resolving the Asian crisis may well turn out to be mere lip service.
That said, APEC leaders would do well to drive home several key points
to revitalise the emerging markets in Asia, Latin America, and also Russia.
For decades, some aging Asian leaders have tried to convince their people
that soft authoritarianism is necessary for prosperity. But a new generation
has emerged for whom such arguments have lost their persuasion. Indeed,
they see in these arguments only self-serving justifications for all forms
of excesses, including corruption. To the new generation of Asians,
political stability is just as important, but it must be based on freedom
and justice, not coercion and denial of fundamental rights.