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 Asia’s rapid-growth era has slowed because of the long fallout from the "Lehman shock," chaotic global markets, a slow recovery in advanced economies and risks tied to an anticipated end to the US Federal Reserve’s stimulus. For investors, slower growth in Asia can mean weaker corporate profits, more volatile markets and greater sensitivity to global demand and policy shifts.
Weak or indecisive leadership is highlighted as a major problem: many countries shelved reforms after past recoveries, leaving economies overly dependent on exports and vulnerable. That can raise policy uncertainty, increase the chance of populist measures (like subsidies or protectionism) and make it harder for governments to implement growth-boosting reforms—factors everyday investors should monitor when assessing country risk.
The article calls out several countries: Indonesia (current account deficit and a weaker rupiah), India (political paralysis and debt concerns), Malaysia (race-based economic policies, rising debt and generous subsidies), Thailand (unsustainable subsidies), and notes that China, Japan and South Korea also face leadership-driven hurdles to structural reform.
Indonesia’s current account deficit is turning off investors and the rupiah has fallen about 14% this year according to the article. It recommends the government needs stronger anti-corruption efforts, accelerated infrastructure investment and restraint on nationalistic resource-sector policies to restore investor confidence.
The article describes the Indian government as effectively "stopped working," raising the possibility of a full-blown debt crisis. Political paralysis—illustrated by weak leadership and public criticism within parties—can delay necessary reforms and fiscal fixes, increasing economic and market risk for investors.
Malaysia is criticized for persisting with race-based economic perks, rising public debt, generous subsidies and a lack of budgetary reform—factors rating agencies are warning about. Thailand’s government is portrayed as reluctant to reform subsidy programs, showing limited political will to curb policies that can strain public finances and distort markets.
The article says China’s new leadership is focused on consolidating power rather than restructuring a fragile economy; Japan’s Prime Minister Shinzo Abe is finding his deregulation plans resisted within his own party; and South Korea’s president is watering down plans for a "creative economy" to avoid alienating big conglomerates. These leadership-driven constraints can slow structural reforms that would benefit long-term investors.
Based on the article, investors should watch political leadership and reform momentum, export and external demand exposure, currency and current-account risks (for example the rupiah’s fall), fiscal pressures from subsidies and rising public debt, and signals about the US Fed stimulus. Monitoring these factors can help investors assess country risk and adjust portfolio exposure in a more uncertain Asian growth environment.
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