Ties That Bind

The Thaksin adventure was doomed, however, and not just because middle-class Bangkok opinion was against him. Though Thaksin brought representatives of tycoon families like the Chearavanonts into his cabinet, his fellow tycoons became ever more livid that—in their view—all the spoils of power appeared to go to Thaksin. The prime minister's telecoms and media business boomed (far faster than the Chearavanonts'), and by the fall of 2006, when Thaksin was pushed out in a coup, the other plutocrats were delighted. Today, Thaksin is in exile and buying an English soccer club; Thailand is again ruled by a military junta, and Thaksin's peers are back at work, sailing in familiar political winds.

Almost none of the big players was ruined by the financial crisis in Malaysia, Thailand or the Philippines, and so it was in Indonesia, despite the fall of Suharto. The old man's closest confidant and golfing buddy, Hasan, was made an example of with a conviction for fraud; he served a couple of years in a special and commodious prison cell. Despite a $56 billion write-off by the Indonesian Bank Restructuring Agency, most of which was required to bail out tycoon banks that engaged in illegal lending practices, most billionaires were able to hold on to the bulk of their assets.

Many prominent figures, nervous that they were not quite safe in Jakarta, decamped to Singapore and ran their operations from there. Sjamsul Nursalim, who repaid only about 10 percent of the money he borrowed from IBRA, is today focusing on large and growing businesses in Singapore and China. The most extraordinary escape story was that of the Widjaya family, which crawled out from under a cumulative debt of $13.9 billion owed by their Asia Pulp and Paper business and its subsidiaries. The Widjayas forced almost all their creditors to take a haircut, bought back bonds they issued for pennies on the dollar, survived the attempted intervention of senior European and American politicians with the government in Jakarta and faced down legal suits from Singapore to the United States. The family filed successful suits in Indonesia that declared some of its bond issues to have been illegal under local law and therefore not subject to repayment. The Widjayas, who were responsible for the biggest debt default in Asian history, are today probably richer than ever.

So where do these shenanigans leave Southeast Asia? It is easily forgotten that 150 years after the modern globalization era began, there is still only one significant Asian country that has made the transition all the way from backwardness to developed-nation status: Japan, and that was a century ago. We are not so good at learning the lessons of development as we think, and Southeast Asia richly illustrates the point.

In the absence of a deregulated common market, ASEAN's intraregional trade is currently 20 percent of its total, compared with more than 50 percent in the European Union. Banking systems remain bloated by the region's high savings rate but dysfunctional in their lending practices. Domestic economies are still concession-based, and corporate governance leaves much to be desired. Perhaps more than anything, what stands out in a review of Southeast Asia 10 years after the crisis is the contrast with South Korea and Taiwan, which is starker than it has ever been in the postcolonial period. Where Southeast Asian states stuck with modified colonial rentier systems after the second world war, South Korea and Taiwan took a different course. They successfully implemented land reform—in stark contrast to countries like the Philippines, where political elites have ensured the continuance of a landed ascendancy—and thereby ensured a bottom-up development process. Their governments made a commitment to social equity, reflected in far lower levels of inequality than are present in Southeast Asia, and the existence of independent organized labor. And when South Korea and Taiwan backed leading family businesses—as all developing states are wont to do—they supported local manufacturers rather than cosmopolitan trading elites.

Most obviously, it is clear today that South Korea and Taiwan take political systems seriously as drivers of development. In 1997, Kim Dae Jung, a longtime democracy and human-rights activist, was elected South Korean president and set in motion the most effective reform process to have occurred in the main crisis countries. Reporting and compliance requirements in the Seoul stock market are now stricter than in Southeast Asia, and the judiciary has shown far greater independence and resolve in pursuing those whose actions contributed to the crisis. The families behind Korea's chaebol are today much weaker than their peers in Southeast Asia.