Ties That Bind

Across Southeast Asia the impact of the 1997 crisis followed the degree of corruption in the banking systems of Indonesia, Thailand, Malaysia, Singapore and Hong Kong. The Indonesian case was extraordinary. By 1997 every Indonesian tycoon had his own financial institution, and most banks had more than half their loans made to businesses run by the controlling families, ignoring the legal maximum of 20 percent. Liem's Bank Central Asia, the biggest in the country, was owed 60 percent of its loan portfolio by other Liem companies.

In the wake of the crisis, there was some banking consolidation. Indonesia now has 130 banks, compared with 240 in 1997. Many banks were nationalized. Unfortunately, corrupt governments have an even worse record of managing credit allocation than tycoon-controlled financial institutions. It was notable that the Indonesian billionaire named by Forbes as the country's richest individual in 2006—timber to real-estate tycoon Sukanto Tanoto, worth an estimated $2.8 billion—was listed by state bank Mandiri the same year as one of its six biggest delinquent borrowers.

Those Southeast Asian banks that have been reprivatized have often gone back to the billionaire fraternity; Liem's BCA, for instance, is now controlled by the Hartono tobacco dynasty. Almost no bank in the region is widely held. The obvious exception, HSBC, whose terms of incorporation never allowed any shareholder to own more than 1 percent of its equity, is the only financial institution (and almost the only company) to have broken out to become a global enterprise.

After the financial crisis in Southeast Asia, in state after state, taxpayers picked up the tab, tycoons picked up the pieces and life went on as before. The lesson of the past decade has been that the relationship between political and economic elites in Southeast Asia is more enduring than almost anyone imagined.

Malaysia, which imposed capital controls and raised a finger to the International Monetary Fund as the crisis spread, dealt with its fallout in traditional fashion. The businesses of Halim Saad and Tajudin Ramli, the leading bumiputra (or indigenous) tycoons with close links to the ruling United Malays National Organization, were bailed out with injections of government money and state share purchases. Ananda Krishnan, the Tamil Sri Lankan billionaire and Mahathir confidant with an empire including telecoms and broadcasting, was shored up when state oil company Petronas bought out his interest in the vast Kuala Lumpur City Centre and Twin Towers real-estate development. Most telling was the fact that after the crisis, UMNO began to set up new tycoons on the old model. Within a few years, tycoon-of-the-moment Syed Mokhtar al-Bukhary, a former rice and cattle trader, built a vast conglomerate based in power generation, the operation of Port of Tanjung Pelepas, mining, plantations and hotels through government concessions and the provision of state financing.

Throughout the region, businessmen have been pushing deeper into politics, and Thaksin Shinawatra took this trend to its logical conclusion in Thailand. Backed by other key tycoon families—such as the Chearavanonts of CP Group and the Sophonpanichs, who control Bangkok Bank—he formed a political party and won election as prime minister. As had happened long before in the Philippines, the businessmen overran the political system, blurring the traditional distinction between political and economic elites.