Talking Crises

A short note from Japan, where I am visiting for what is officially the shortest trans-Pacific work trip of my life (38 hours and 55 minutes, assuming my flight tomorrow night leaves on time). I’m here to talk about crises, and specifically, the effects of the Global Economic Crisis in Southeast Asia and what they tell us about regional political economy.

“Wait,” you say, “the GEC didn’t have any effect on Southeast Asia!” Yes, but that’s the point: Southeast Asia was hammered by the Asian Financial Crisis in the late 1990s, but escaped this one relatively unscathed. Sure, growth rates slowed in Malaysia and turned negative in Singapore, but Indonesia cruised along quite nicely. The Philippines and Thailand haven’t done as well, but their troubles stem from domestic political uncertainty and long-term structural issues in their political economies rather than some form of international financial contagion. It’s often observed that the last crisis was about financial contagion, whereas the exposure in Asia today is through trade, not financial, channels. That’s true, but it’s not just a statement of fact, it’s a phenomenon to be explained.

The non-crises in Southeast Asia demand explanation, so I’m here to offer my own. Briefly, my argument is not that Southeast Asia shaped up over the past decade, but rather that changes in foreign perceptions about Southeast Asia’s political economy after the last crisis lowered the ex ante vulnerability to external financial shocks in the region. For example, exchange rates are no longer misaligned (in part because the last crisis fixed that problem right up), nor is there a sense of unbridled optimism in the West about the growth prospects of emerging Southeast Asia (the same applies).

Another way to think about this is that having had a crisis in 1998 was a convenient way to ward off having another one in 2008. There is a triumphalist sense among some observers that the fact that the GEC didn’t spread to SE Asia means that local governments have fixed their big political and economic problems, but I don’t think that much real progress has been made on most important issues. It’s not an accident that I title the paper “99 Problems (But A Crisis Ain’t One).”

Of course, this isn’t as neat as I’d like it to be. One question that bugs me is why the banks and investment houses in Southeast Asia did not jump on the MBS-CDO train the way that we saw in the US and Europe. (I first posted about this in 2010, comparing Singapore and Iceland.) This is puzzling, given means (smart, globally-aware bankers), motive (greed), and opportunity (open KA, plenty of people selling these things). In fact, we do know that one or two important bigshots found themselves heavily exposed in 2008, but the rot wasn’t deep enough to spread to the entire economy. I can’t pretend to know the answer to why this didn’t happen, but I don’t think that enough people in the policy world realize how important it is to pay attention when bad things don’t happen, and to explain these non-crises. So when I lecture to a bunch of Japanese policy scholars tomorrow (or is it today? who knows) on the (non-)effects of the GEC, I’m going to make this point as clearly as I can.

Comments 2

  1. Samuel Clark March 27, 2012

    Hi Tom, I was reminded of this post on a visit last week to Central Kalimantan. Influenced by the likes of Michael Pettis on China (, my thinking is that Indonesia, like other resource rich countries such as my own country Australia but also Canada, dodge the full impacts of the crisis because of China’s massive post-crisis stimulus. Of course as you say this contagion would work through a trade mechanism rather than a financial mechanism. But the implications could be quite significant.

    This is where my trip to a remote district in Central Kalimantan is related. From a brief visit it seemed clear that Murung Raya district is almost wholly dependent economically on the global mining boom. If this were to end in the next year or two as some believe it will there would be a significant impact on Indonesia’s fiscal position generally but a huge impact in some regions. In addition to a sharp contraction in the local economy and local govt revenues, it’s possible that social tensions between indigenous groups and migrants could increase for example. I don’t meant to claim that tensions are bubbly under the surface–I didn’t get that impression at all–but it seems that the resource boom has allowed Indonesia to paper over many flaws in both its fledging political institutions as well as huge inefficiencies in its economy.

    I’d be curious to hear in a follow-up post how the discussion played out, when you’ve got a spare moment. And great blog by the way, I like the mix of methodological discussions and area knowledge.

  2. Tom March 27, 2012

    Thanks, Samuel, for reading, and for the nice words.

    Your observation is a key one. I had a similar experience hanging out in Perth last summer. I learned that WA is absolutely booming right now for similar reasons to Central Kalimantan, in a way which isn’t true in, say, Victoria. This allows the WA government to paper over some real problems in infrastructure and property and the like. One would also imagine that an end to China’s demand for whatever it is that they mine in Kalgoorie would place much bigger strains on WA than Vic.

    It’s an interesting research question: how do changes in international demand for local exports affect local economies and politics? I’ve thought about this at the national level. Daniel Chen has a fascinating paper on the differential effects of the Indonesian Financial Crisis on wetland rice farmers and how that affected religious behavior (

    It’s worth thinking more about this. Perhaps next time I’m in Jakarta or Oxford we ought to meet and chat over a drink.

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