Hidden stakes in Asia's slowdown Stability at risk: Thai political shake-up, tremors in Indonesia, blame in Malaysia.

November 09, 1997

UNLIKE CURRENCY crises in other countries, those in Thailand, Indonesia and Malaysia do not concern grandiose government expenditure or budget deficits. These are private-sector implosions, rather like the Maryland savings and loan scandal of the 1980s. But underneath lie political realities and uncertainties.

Suharto of Indonesia is a military strong man and president since 1968 who has given the world's fourth-most populous country the stability it needed for capitalism to grow. But he is 76, with no successor in sight or opposition tolerated. Capitalism has flourished as the fiefdoms of the politically connected.

So when the International Monetary Fund offered bailouts and supports totaling $33 billion, it was in return for reforms that undermine the family of Suharto and were instituted while he was out of the country at the Group of 15 developing country meeting in Malaysia. The government liquidated 16 insolvent or troubled banks, several of them controlled by members of his family.

A lawsuit by one of his sons seeks to set aside the liquidations, which would put the bailout at risk. The privileged insiders suggest the reforms are meant to prevent Suharto being given a sixth five-year term in May. Suddenly he seems to be the problem, after three decades billing as the solution.

Within Thailand's constitutional forms, powerful generals dominate politics and a respected king keeps them somewhat in line. Prime Minister Chavalit Yongchaiyudh shook up the country this past week by announcing his resignation. Parliament passed six reform bills giving government the power to rescue or liquidate 58 troubled financial services firms, in return for a $17.2 billion IMF rescue package.

Jockeying to replace General Chavalit was fierce until the announcement by the royal cardiologist that King Bhumibol Adulyadej, 69, had "fallen ill due to his concern over the current political situation." The physician, without political or royal authority, asked for a cessation of politics.

Meanwhile, in Malaysia, Mahathir Mohamad, the prime minister since 1981, has been blaming foreign financiers, not Malaysia's own speculators, for his country's burst economic bubble. Suddenly he has become an embarrassment, not a pillar of strength.

The financial nature of the crisis -- which shook Wall Street again on Friday -- cannot disguise the need of all three countries to develop democratic political institutions, not dependent on personalities, that can withstand bad news. Their politics need to modernize as effectively as some of their businesses did.

Pub Date: 11/09/97

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