Weak leadership puts pressure on Asian economic future
These risks are the talk of Bali, where Asia-Pacific Economic Cooperation nations are mulling what to do about a world where "risks remain tilted to the downside".
Michael Taylor, chief credit officer for Asia at Moody's, said chaotic markets and a slow recovery in advanced nations were driving "change in the economic cycle" that makes sustaining growth in Asia "more challenging".
But a messy international scene isn't the biggest problem facing Asia. The problem is weak leadership in a region that desperately needs bold and visionary solutions to a growing list of challenges.
Asia failed to use years of high growth to recalibrate economies away from a hyperdependence on exports. After Asia's meltdown in 1997, policymakers strengthened financial systems, built more transparent business environments, and attacked cronyism. Then, at the first sight of recovery, reform efforts were shelved.
The costs of that complacency are rising: The Asian Development Bank estimates 2013 growth will be the slowest in four years, at best.
As Asia's export machine sputters and markets brace for an end to the US Federal Reserve's stimulus, governments need to act nimbly to protect growth. Yet considering the state of Asian leadership, it's hard not to be gloomy about the region's chances. Here's a quick rundown.
Indonesia: For all his success in bringing stability to a nation that 15 years ago seemed destined for failed statehood, President Susilo Bambang Yudhoyono looks a spent force. His team needs to act forcefully to erase a current account deficit that's turning off investors and has pushed the rupiah down 14 per cent this year. Yudhoyono should be intensifying his anti-corruption drive, accelerating infrastructure, and restraining the nationalistic vibe that now permeates the resource sector.
India: There was a certain irony to Manmohan Singh visiting the White House last week as the US government was shutting down: The Indian PM's own government stopped working some time ago. His team faces the possibility of a full-blown debt crisis. When Congress Party heir Rahul Gandhi's criticism of something as obvious as letting criminals serve in Parliament passes for leadership, you know India's economy is in trouble.
Malaysia: Hopes that Prime Minister Najib Razak would scrap race-based policies that favour ethnic Malays were all for naught. Instead, Najib is doubling down on economic apartheid, expanding perks at the expense of Chinese and Indian minorities. Rating companies are calling Malaysia out for its rising debt, generous subsidies and a lack of budgetary reform.
Thailand: Prime Minister Yingluck Shinawatra is also failing the subsidies test, displaying a lack of political will to stand up to farmers and to gasoline consumers.
Even Asia's bright spots face leadership deficits. China's new bosses are too preoccupied with consolidating power to restructure their rickety economy. In Japan, Shinzo Abe's pledges to deregulate the economy are running foul of his own party. In South Korea, Park Geun Hye is watering down plans to craft a "creative economy" for fear of alienating the country's conglomerates.
Asia avoided the worst of recent crises, but its luck may be running out. Asia's next five years could be quite turbulent indeed.
Frequently Asked Questions about this Article…
The article says the slowdown reflects the lingering fallout from the “Lehman shock,” chaotic global markets and a slow recovery in advanced economies. Moody’s chief credit officer for Asia, Michael Taylor, notes these factors are changing the economic cycle and making it harder to sustain high growth across the region.
Weak leadership can mean delayed or cancelled reforms, rising fiscal risks and policy mis-steps that hurt growth. For investors this shows up as currency volatility, slower corporate earnings growth, higher sovereign or corporate risk and greater uncertainty about the outlook for markets and returns.
The article calls out several vulnerable countries: Indonesia (a widening current account deficit and a rupiah fall of about 14% this year), India (political paralysis and risk of a debt crisis), Malaysia (rising debt, generous subsidies and stalled budget reform), and Thailand (costly subsidies). It also warns that China, Japan and South Korea face leadership shortfalls that could slow needed economic restructuring.
The Asian Development Bank estimates that 2013 growth will be the slowest in four years, underscoring the region’s weaker near-term growth prospects compared with the recent past.
The article suggests the end of Fed stimulus could tighten global liquidity and weaken demand for Asian exports, putting additional pressure on currencies and growth. Governments that fail to act nimbly could see bigger market reactions, so investors should be mindful of policy responses and external funding risks.
Investors should track currency movements (eg. rupiah weakness), current account balances, government debt and subsidy levels, signs of stalled structural reform, and political stability or leadership changes — all of which the article links to rising economic risks in the region.
After the 1997 crisis policymakers initially strengthened financial systems, improved transparency and tackled cronyism. But the article argues many reforms were shelved once growth returned, leaving economies more exposed when global conditions deteriorated again.
The article is cautious: even the region’s so-called bright spots (China, Japan, South Korea) face leadership challenges that may slow reform. For investors, that means potential opportunities exist but are closely tied to whether governments follow through on policy changes — so monitoring reform progress and political will is key.
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