Ten years on: Too much “Guided Democracy”?

Michael Vatikiotis
Opinion Asia
02 Jun 07

As Southeast Asia prepares to celebrate a decade since the collapse of the Thai baht and the onset of the Asian Financial Crisis, it would be comforting to look back and reflect on a decade of reform and lessons learnt. But while there have indeed been many changes introduced with the aim of preventing another currency crisis leading to a sharp economic recession, the major political reforms some thought would stem from the crisis have happened only fitfully. So even if the currency speculators have been seen off, the region continues to endure social and economic inequality that stunts growth and sustains political risk.

Before July 1997, the paucity of broadly representative and accountable democratic government was lamentable, but often excused in the face of soaring double digit growth figures. Afterwards, as foreign investment dried up and poverty rates increased, political change was deemed necessary for future stability and growth. Poverty levels in Indonesia for example fell from 40% in 1976 to just under 12% in 1996, but climbed back up to 26% in 1998 and today hover around 18%.

After the fall of the authoritarian Suharto in 1998, Indonesia entered a long and agonising era of reform during which one government after another promised to tackle corruption and cement in place the foundations of a truly representative democratic government. Looking back over this often frustrating decade, Indonesia has made real progress. Democracy is firmly in place, the media is free and government much more accountable as a result. Government has been decentralised and Indonesia’s far flung regions enjoy a real measure of autonomy that has started to unlock untapped or mismanaged economic potential. District officers once drawn from the ranks of the military are now directly elected. Less progress has been made tackling corruption, though compared with elsewhere in Southeast Asia, the current government is at least trying.

Elsewhere in the region, old habits and traditions die hard. Thailand, the epicenter of the financial crisis, spent the initial post crisis period in a period of frantic, IMF guided reform. But Thais quickly grew tired of austerity; the urban middle classes clamoured for the “easy come” prosperity of the go-go 90s, forgetting all about the “easy go” that ensued. Big business families were anxious to stem the tide of foreign ownership that followed the crisis and diluted their equity. All this translated into solid backing for the incoming administration of Thaksin Shinawatra in 2001.

Thaksin argued that there had been enough reform and that Thais wanted to get on with growing rich again. This set the stage for dramatic reversals of economic and political reforms that had encouraged transparency and probity in both the public and private sector. Populism became the leitmotif of post financial crisis politics in Thailand, a blend of economic nationalism and cronyism that allegedly supported spreading the wealth to the masses, but in reality created bigger markets for a select few businesses owned by the ruling party and its cronies.

In Malaysia and Singapore the mantra of reform soon gave way to the impulse to protect and preserve state owned assets from the wave of foreign ownership that swept Southeast Asia post-1997. The Financial Crisis was expected to make a dent on Malaysia’s rigorously enforced preferential assistance for ethnic Malays, known as the New Economic Policy, and open up Singapore’s state sector to foreign investment. Instead, both countries relaxed rules so that foreign banks and other firms could operate more freely, but core assets have stayed off limits. This was reform at half speed and the result was a fairly unchanged landscape.

As a result, there have been several periods since 1997 when economists feared the region might slip again into crisis. Governments continue to try and manipulate their currencies to maintain lower exchange rates that attract investment and keep labour costs low, but which undermine the value of ordinary people’s savings and drive up the costs of imported goods and services. Ten years on, and Thailand is still imposing capital controls and the inequalities enforced by Malaysia’s New Economic Policy persist.

The real problem here is not economic reform, but a stubborn reluctance to allow untrammeled political change in the majority of countries. For decades, democracy has been only half embraced in Southeast Asia; allowing just enough freedom and representation to keep people off the streets and demanding more of a say in how they are governed, yet imposing enough limits on freedom to preserve elite political and economic status quo. Usually, these limits are defended in the name of social cohesion and stability. The best description of this kind of Democracy was the one coined by Sukarno, Indonesia’s founding President in the 1950s. He called it “Guided Democracy”.

The beauty of this more defined and constrained democracy as far as Southeast Asia’s leaders are concerned is that it prevents the undermining of long established ties of patronage at the apex of society. These ties promote the stability that businesses crave; they perpetuate the wealth of a few, but they stifle competition and limit growth. Perhaps Thailand’s finance minister Chalongbhob Sussangkarn said it all when he lamented recently: “We need to accelerate reform or face the prospect of being unable to compete five to ten years in the future.”

Michael Vatikiotis is the Singapore-based Regional Representative of the Centre for Humanitarian Dialogue

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