Thailand is only the tip of Asia's iceberg

TEARING UP A NATION: Protesters surrounded almost half of the polling stations in Bangkok on Sunday, forcing the cancellation of advance voting at many centres. The writer says that weaknesses exposed in Bangkok are present in other Asian nations.


    Jan 29, 2014

    Thailand is only the tip of Asia's iceberg

    WHAT else is there to say about the state of emergency and political gridlock in Bangkok?

    Sooner or later, foreign companies are going to start voting with their feet, as the president of Toyota Motor's Thai unit warned last week.

    Tourists, fearing cancelled flights and the odd bomb explosion, are going to stop filling the beaches.

    In their give-no-quarter battle for supremacy, Thai politicians aren't just making Democrats and Republicans in Washington seem reasonable: They are also destroying the country's potential.

    Scarily, though, the region may have an even bigger problem to worry about.

    The circus-like dysfunction in Bangkok is unique. The weaknesses being exposed there are not. From Thailand to Indonesia - even as far as India - Asian nations are displaying an extremely worrying set of shared vulnerabilities.

    Across the region, debt-fuelled growth is wrecking household balance sheets. Large subsidies are draining government coffers. Asset bubbles in real estate and equities continue to swell. The gap between rich and poor is widening. And once-frothy markets are dangerously exposed to United States Federal Reserve tapering.

    I fear this combination of factors could be pushing the region towards another crash.

    Governments have no one but themselves to blame. They've failed utterly to use the heady growth of recent years to strengthen financial systems, wean their populations off unsustainable handouts, or improve infrastructure.

    Thailand is merely a microcosm of what ails the region. Take Prime Minister Yingluck Shinawatra's disastrous rice-subsidy scheme, which has blown a US$4 billion (S$5.1 billion) - at least - hole in the nation's fiscal position.

    Instead of enriching rural areas, it has distorted commodity markets and caused a build-up of more than a year's worth of rice for rats to eat. Meanwhile, a US$61 billion improvement plan to up Thailand's attractiveness as a business hub remains on hold, as do water projects.

    More than street protests and government incompetence are to blame.

    The same holds true in countries that look far more stable on the surface. In investment darling Indonesia, President Susilo Bambang Yudhoyono has been missing in action for much of his second term. Rather than fix the country's current-account problem, he has enabled a level of creeping economic nationalism that is turning off foreign investors.

    Sure, it would be great if mining companies refined mineral ore in Indonesia before exporting it, creating local jobs and increasing revenues. But the way to encourage that is to provide incentives, not to ban exports or institute punishing taxes.

    Smugness imperils Malaysia, too. Instead of ending the country's Malays-first affirmative action scheme - which impedes foreign investment and warps corporate governance - Prime Minister Najib Razak has expanded it.

    Similar examples of populism trumping progress can be found in Vietnam, Brunei and Myanmar.

    The common denominator in all these countries is weak leadership, and it's appearing at the worst possible moment.

    The rapid growth Asia has enjoyed since the 2008 global crisis had more to do with Dr Ben Bernanke, the outgoing chairman of the US Federal Reserve, than we would like to admit. All that hot money pumped up gross domestic product, boosted asset prices and pushed yields lower to make government debt loads appear manageable.

    Thailand may offer the clearest example of how the Fed's ultra-low interest rates helped cover up deep-seated structural problems in emerging markets. But as the Bernanke bubble deflates, officials throughout Asia will regret ignoring the well-nigh suicidal course that they are on.