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Grading South-East Asia’s reformers

LiveMint logoLiveMint 07-09-2017 William Pesek

If any Asian nation proves rapid gross domestic product (GDP) isn’t all you need, it’s Rodrigo Duterte’s Philippines. A 6% growth rate somehow leads investors to overlook the president’s erratic behaviour, the 7,000-plus body bags his war on drugs has filled and his disinterest in reforms needed to raise living standards.

Here’s a data point: after less than 450 days in office, Duterte’s policies have brought about more loss of life than Thaksin Shinawatra’s drug war in Thailand in the early 2000s or eight years of martial-law rule under Philippine dictator Ferdinand Marcos.

To add insult to injury, Duterte has cozied up to the Marcos family, even favouring Ferdinand Marcos Jr. for vice-president.

He also supports letting the Marcos family return some of the roughly $10 billion it embezzled (and claimed for years it didn’t have) to rehabilitate the family’s image.

All this makes Manila an awkward setting for the 10 members of the Association of Southeast Asian Nations (Asean) to celebrate their 50th anniversary.

It’s Manila’s turn to host Asean this year, and officials have been convening there to crow about the economic and social progress made by 625 million people. Relative stability, boosters claim, is creating prosperity and a manufacturing powerhouse. Today, its combined GDP is about $2.6 trillion. By 2020, the World Economic Forum expects Asean to be the world’s fifth largest economy.

Yet, when Asean speaks of political stability, it means no physical wars between members. It glosses over the growing cracks tearing members apart from the inside out. As Europe reminds us again and again, an economic grouping is only as durable as its weakest links. And South-East Asia almost has too many to count.

This midlife crisis offers a timely excuse to assign grades to South-East Asia’s would-be reformers. In a previous column, on 30 June, I gave India’s Narendra Modi a “B” on economic retooling, Japan’s Shinzo Abe a “C” and China’s Xi Jinping a “C-.” How about South-East Asia, from worst to best?

Thailand: Healthy GDP growth of 3.7%, aided by global tailwinds and tourism, doesn’t alter the fact that the junta that grabbed power in May 2014 has no economic plan. You can forget the election that General-turned-Prime Minister Prayuth Chan-o-cha has promised for 1,226 days now. As he cements his reign, Prayuth is focused on populist handouts at the expense of badly needed reforms. He’s moving glacially on $67 billion of projects to upgrade ports, roads, bridges and power grids and steps to make it easier to get things done. His big talk of cutting red tape, knocking rent-seeking middlemen out of the loop and bypassing democratic checks and balances to get Thailand back in business is proving to be just that. Bangkok’s grade: D.

Philippines: Again, the 6.4% year-over-year growth Duterte is enjoying would seem to warrant a better score. But Duterte is still benefiting from the upgrades his predecessor, Benigno Aquino, implemented from 2010 to 2016. Aquino’s moves to tighten the national balance sheet, improve transparency and governance and curb corruption won Manila its first ever investment-grade ratings. That momentum has papered over Duterte’s neglect. The scourge of drugs should be addressed, but it’s a self-defeating obsession that’s eclipsing all else. Can Dutertenomics, if it even exists, survive all that shooting? As the president earns his “Duterte Harry” nickname daily and gleefully and human-rights groups pounce, economic progress is joining the list of casualties. Manila’s grade: C

Indonesia: The highs and lows of President Joko Widodo’s 35 months in office look just like a stock volatility chart. But Widodo, known as Jokowi, is reclaiming the reformist momentum. Granted, South-East Asia’s biggest economy needs to grow faster than today’s 5% to become a Group of Seven, or G7, economy by 2030, as McKinsey predicts. It also needs to grow better, something on which Jokowi is working. Jokowi accelerated a $350 billion infrastructure boom to increase competitiveness. He made Jakarta more transparent and accountable, including putting more government procurement and tax-collection processes online. His tax amnesty act is prodding greater investment at home. Also, Jokowi maintained Indonesia’s improvement in Transparency International’s corruption-perceptions rankings—from 133 in 2004 when predecessor Susilo Bambang Yudhoyono took office to 90 now. Jakarta’s grade: B

There are plenty of other cracks in Asean’s ranks: Malaysia’s leadership battle; the human-rights rebukes Hun Sen is accumulating in Cambodia; political repression in Vietnam marring strong GDP growth; Myanmar’s flawed democratization process; Brunei embracing Sharia law; and how China plays one South-East Asian nation off another.

That’s not to ignore Asean’s success in keeping the regional family together these five decades. But as the grouping prepares for the big event in November—the Manila summit, to which Abe, Modi and Xi will be invited—it features too many weak links for comfort. Let’s just keep the champagne popping to a minimum, shall we? The locals might mistake them for gunshots.

William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.

His Twitter handle is @williampesek

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