Southeast Asia: Towards a Sustained Recovery?

Abstract

Asia's astonishing bounce-back was the cover story of the Economist at the end of August 1999. In the latter part of 1999, other daily and weekly journals covering Asian affairs also proclaimed the economic crisis to be over; some declared the patients not just to be out of intensive care but ready to be discharged from the convalescent home. But while there appears to be con vincing evidence of a remarkable turnaround in South Korea, was this really the case for the worst affected Southeast Asian economies? The Indonesian economy, which had suffered the largest decline in gross domestic product (GDP) in 1998 was buffeted by two severe shocks in August and September 1999, which made predictions of a rapid return to positive growth look distinctly dubious. On the one hand, the Bank Bali scandal seemed to demonstrate that officials close to President Habibie were apparently just as corruption-prone as were those around former President Soeharto, while the post-election turmoil in East Timor severely damaged the reputation, at home and abroad, of both the army and the civilian administration. Both events led to a fall in the value of the rupiah and fears that investor confidence, still very fragile, would be further undermined. In October 1999, the People's Consultative Assembly refused to accept President's Habibie's account of his brief term in office, whereupon he withdrew from the presidential election. The subsequent ballot led to the election of the well-known Islamic leader and democracy activist, Abdurrahman Wahid, as president. Megawati Soekarnoputri, the daughter of Indonesia's first president, whose party had garnered the largest number of votes in the June elections, became the vice-president. But the honeymoon period for the new team was brief, and by early December the increasingly strident calls for a referendum in Aceh, and continued religious violence in the province of Maluku, were causing widespread fears that the Indonesian state was teetering on the verge of disintegration. If we judge the severity of the crisis by the decline in real GDP in 1998, then both Thailand (-9.4 per cent) and Malaysia (-7.5 per cent) were only slightly less badly affected than Indonesia (-13.7 per cent). Although by the