Asia has changed dramatically in the past five years, following a financial crisis that created turmoil in the region. The unhedged foreign-currency portfolios that killed so many financial institutions, and the stock and real estate bubbles that caused so much pain are no longer threats. Once-hallowed "Asian values," often just a smoke screen for cronyism and corruption, are no longer celebrated. Profitability, transparency, and good governance are the new watchwords. But much more needs to be done.
The steady dripping of bad loans continues to corrode the financial system. Corporate governance has made few strides. Big families from Seoul to Bangkok fight to hold on to their troubled empires, often at terrible costs to minority shareholders. The political leadership needed to push forward looks shaky. The best of the bunch is South Korea's reformist President, Kim Dae Jung. But Kim's own son has been hauled up on corruption charges, and the President is in his final year in power.
All these challenges threaten to make this a lost decade, especially for Southeast Asia. Sure, the economies are growing. But the rate is only about half what it was in the quarter-century before the crisis. The lack of progress on building legal systems and instilling corporate governance is keeping much-needed foreign capital away. The general perception of Indonesia, the Philippines, Thailand, and other Southeast Asian countries is summed up by a senior Western investment banker with long experience in the area: In the past few years, the region has gone back to being little more than natural-resource economies--"hewers of wood and bearers of water." That's arguably too harsh a judgment, but such sentiments are spurring foreign investors to write off much of Southeast Asia.
Real change is not going to come easily. It will require a better educational system, so workers have the skills to compete in an increasingly sophisticated world--especially one in which China is emerging as such a formidable competitor. It needs to have states capable of dealing with the threat posed by extremist groups. The inability of the Philippines to contain the Abu Sayyaf could be a worrying indicator of worse to come. In the business sphere, Asia's leaders need to keep cleaning up the banking system, keep streamlining government, keep improving the court system.
What's needed above all is political leadership, especially in Thailand and Indonesia. If it doesn't come from the top down, it should come from the bottom up. It's important that nongovernment organizations, the media, and business groups push their agendas within the limits of Asia's emerging democracies. That will test and build democracy. In Asia, the old order is dying. But the birthing pains of the new one have only begun.