LUMPUREnthusiasm for globalization seems to be waning in Southeast
Asia, which has been one of the main beneficiaries of open markets, trade and
capital flows. Political leaders and the public have not turned hostile to the
concept, as in Latin America, but there is a sense that the process is grinding
to a halt and that the region needs new ways of maintaining or regaining
There is some lingering impact of the
Asian financial crisis on local confidence, but that is now a secondary factor.
With sensible policies, these nations can now cope with liberalization, so
optimists still see a return to pre-crisis conditions, albeit with slower growth
than in the past.
That optimism is being eroded, however,
by the following factors.
Trade and investment competition from
China. It can reasonably be argued that these countries gain as much as they
lose from Chinese growth driven by foreign trade and investment. China's goods
market, tourists and outward capital flows are all beneficial to its neighbors.
However, China is viewed as supplanting Southeast Asia as a locus from which
manufacturers serve global markets. This is diminishing the smaller countries'
attractiveness for foreign direct investment, which makes them think more in
terms of regional or domestic than global markets.
Damage to commerce from Sept. 11, the
threat of war against Iraq and the terror attack on Bali. Even before Bali,
the region was being hurt by foreign investors' perceptions of danger. It is
difficult for Asians to retain faith in globalization when its Western promoters
are losing theirs.
Recognition that Southeast Asia's
traditional markets and sources of capital will grow slowly, at best.
Whether or not the U.S. economy picks up soon, its trade deficit has to be
addressed sooner or later. Europe is almost moribund, Japan's prospects are at
Awareness of global overcapacity in
many industries, from autos to consumer electronics, on which the region had
been relying for growth. With China adding capacity faster than its domestic
market is growing, it will take a long time for overinvestment to clear.
Faced with these problems, regional
leaders have been trying to adjust. Prime Minister Mahathir bin Mohamad of
Malaysia, for instance, remains a tireless promoter of foreign direct
investment, but now suggests that Malaysia may need to be more inward-looking
simply out of necessity.
Prime Minister Thaksin Shinawatra of
Thailand has gained political mileage by emphasizing the merits of local
investment projects. He is also now pushing ideas for regional rather than
Optimists hope that increased regional
and bilateral cooperation can make up for lack of progress at the World Trade
Organization and other global forums. ASEAN's free trade agreement continues to
progress and the goal of a free trade pact with China is at least a statement of
intent. Singapore's signing of bilateral free trade pacts is an attempt to keep
liberalization from stalling.
However, foreign investment, more than
official pacts, has been the engine of regional trade liberalization. Less
foreign investment may mean more pressure from local capital, including that of
the state, for protection. National projects, backed by public money, could be
favored as governments attempt to offset falls in foreign investment.
South Korea's success in building many
industries behind high tariff walls is a siren song. If Thailand, Malaysia and
Indonesia follow that path they are more likely to end up like Latin America
than Korea. This would be a blow, too, to the much touted idea of regional
There could be benefits from increased
competition for foreign investment. One is a more efficient use of capital and
increased emphasis on human resources. The region's capital-to-output ratios
suggest wasted resources and poor returns. Another possible benefit is an
emphasis on domestic rather than export demand.
Southeast Asia does not face another
crisis. But it is facing changing global circumstances that may prove a greater
challenge and opportunity than the financial crisis of 1997-1999.