Simon Roughneen and Diana Ionescu
As an IMF note to the G-20 leaders gathered at the recent London summit put it, “Growth also plunged across a broad swath of emerging economies. Against this backdrop, global activity is expected to contract in 2009 for the first time in 60 years.”
In 1998, the Asian financial crisis left a lasting mark on politics in Southeast Asia. The Suharto regime fell in Indonesia and, arguably, ongoing turmoil in Malaysia and Thailand can be traced to the impact of ’98.
However, this time around, the region is expected to come through the current recession relatively unscathed, in comparison with a decade ago, and in comparison with Eastern Europe, another market-oriented emerging-economy locus.
The latter region has seen a number of governments fall already, amid concerns that the bailout requirements for shoring up former communist economies might prompt a “thanks but no thanks” response from Western Europe.
However, the idea that Southeast Asia will emerge without at least some political scar tissue is misleading. Recent protests in Thailand have their origins in a color-coded political rift whose history precedes the economic slump. However, with a government unable to act or function effectively, it is clear that the downturn presents Thaksin’s Red Shirts with an ideal opportunity to replicate the previous success of their Yellow Shirt rivals, by undermining a government through street violence.
At this stage, however, political casualties of the economic crisis have mostly been seen in Eastern Europe. Latvian Ivars Godmanis’ government was forced to resign in February when wage reductions of 15 percent in public services resulted in major riots. In the Ukraine, demonstrations occur almost daily as the country teeters on the brink of collapse. After Ukraine’s government failed to agree on a budget, the IMF has postponed payment of the second tranche of a $16.4 billion loan.
Similarly, efforts to impose austerity cutbacks demanded by the IMF forced Hungarian premier Ferenc Gyurcsany to quit in March. Four days later, Czech Prime Minister Mirek Topolanek, who was supposed to hold the presidency of the EU Council until mid 2009, along with his government, lost a vote of no-confidence, leaving the Czech Republic and the EU without a leader.
Ironically enough, Singapore, Southeast Asia’s bastion of stability, might be most vulnerable to real change in that region. While Thailand might sway to and fro between military coups, installed puppets and street protests, the reality is that such dramas are nothing new in Siam.
Any move away from the Peoples Action Party (PAP) domination in Singapore, however, would amount to something novel. Singapore’s GDP could contract by as much as 8 percent this year. As one of Asia’s most open economies, where exports of goods and services last year accounted for around 145 percent of GDP, the city-state has been slammed by the collapse in global trade.
Prime Minister Lee Hsien Loong may call an early election, to get the best result possible in case economic pain leads to a bigger backlash, further down the line, against his PAP. More generally, should the Singapore model (authoritarian politics coupled with economic prosperity) unravel, it could have implications for other like-minded regimes.
Vietnam, like Singapore, might represent another case for early warning. The ruling Communist Party has based its legitimacy on market reforms and high growth, but this could be jeopardized. Already, hardliners in the Hanoi politburo are dismayed that too much opening-up has compromised the one-party regime, allowing the seeds of dissent to grow.
Indonesia has just had its third national elections since the 1998 economic collapse saw autocracy routed and an effective democracy take hold. While final results are not yet crystal clear, and a presidential poll awaits in July, it appears that the crisis has prompted an increased pragmatism from candidates and voters alike, with all parties having to chase votes based on bread-and-butter issues, shifting even Islamist parties such as the PKS (Islamic Justice Party) closer to the center, for now at least.
The Philippines will enter its own electoral cycle in 2009-10, with the usual freewheeling no-holds-barred oligarchies dominant. However, remittances, equal to around 10 percent of GDP, will likely fall drastically, as emigrants struggle to keep jobs abroad in a global downturn. Manila’s parlous public finances and fragile economy will not be able to meet any shortfall, leaving the country more prone than ever to volatility.
Similarly, large-scale layoffs in Western European countries have hit Eastern European guest and migrant workers . Remittances account for 17 percent of Bosnia-Herzegovina’s (BiH) GDP and, with workers now pushed into returning home, the socio-political pressure will increase in countries such as BiH and Macedonia, where unemployment is now at 34 percent.
Diana Ionescu is a post-graduate economics student at the Vienna University of Economics and Business, writing her thesis on SWFs.Show