Beware The Foes Of Open Markets
The events coming out of Malaysia in recent weeks are simply bizarre--and terrifying to people who believe in democratic institutions and the due process of law. They involve hooded policemen bursting into the home of a fired Deputy Prime Minister to drag him away on charges of sodomy--delivered with explicit detail on national television by the Prime Minister himself.
But this is more than just a dispute between the ousted reform-minded deputy, Anwar Ibrahim, and his ex-boss, Prime Minister Mahathir Mohamad. It's a battle over the spirit of reform, and over the changes Asian countries need to institute if they are going to put their economies on the road to recovery. The volatile forces of global capital certainly upended Asia's economies. But the same financial currents also acted to undermine authoritarianism and promote democracy throughout the region. Mahathir's jailing of Anwar is part of the spreading reaction against democratic capitalism now taking place across Asia.
Anwar, with his long tenure in government, is certainly no saint. But he has long urged Mahathir to cut back on the cozy relationships between government and Big Business that hurt Malaysia economically. He was pro-market and pro-reform. His views were rejected when Mahathir instituted controls on foreign exchange, effectively isolating the Malaysian economy--and leaving him free to prop up ailing companies with close ties to Mahathir's political party, the United Malays National Organization (UMNO). Indeed, Anwar was thrown out of UMNO weeks before he was arrested.
But Anwar and his increasing number of followers know that fundamental restructuring is needed. The wasteful cronyism of the past is too expensive to continue during an economic recession and cannot be a base for economic growth in a rapidly changing region. Whether the movement for reform can continue with Anwar in jail is unclear.
Malaysia may illustrate how politics is blocking economic recovery, but it is not the only case in the region. The hope that the economic crisis, which began in July, 1997, would lead to transparency, accountability, and market reform is being dashed across Asia. Along with it goes the expectation that a new kind of democratic politics would soon prevail as well.
In Korea, newly elected President Kim Dae Jung is too weak to dislodge the influence of the chaebol, which remain powerful enough to resist change. Despite overcapacity and lack of profitability, they can still get financing from Korean banks, keep foreign investors at bay, and retain the status quo.
In Thailand, the new government of Prime Minister Chuan Leekpai has good intentions, but politicians representing local real estate groups have blocked passage of laws that would speed up foreclosure of unprofitable properties.
In Indonesia, hope of a serious sell-off of ailing properties is fading fast. Despite the promises of President B.J. Habibie, privatization is crawling along.
In Japan, as everywhere in Asia, a banking crisis is at the heart of the problem. Entrenched political interests, which benefited from loans to constituents, block fundamental reform.
There is a growing consensus that a new architecture of global finance is needed to control the free flow of global capital and the destruction it can cause. But policymakers should understand that in Asia and elsewhere, those who oppose open markets often oppose open societies. Any new international financial structure should not play into their hands.