Tigers and Kittens

GELBER: Has the crisis changed the character of the region? Is the era of the East Asian tigers now over?

LEE: The character of the region has changed, but the era of the tigers is far from over. I don't think we will see the same "irrational exuberance," if I can quote [US Federal Reserve chairman Alan] Greenspan, for quite a long while. People will be wary of another bubble. Will the tigers become little kittens? Some will adjust and do what is necessary. I don't see Korea becoming a kitten. But whether Thailand or Indonesia grow into tigers or smaller cats depends on whether they are prepared to take the necessary measures. The solution is quite simple: clean up the system, win back confidence, get back capital inflows. It's painful for a few years.

Who is making the smartest moves around the region?
There is no smart approach, no shortcut. Mistakes have been made, excesses have been committed. Deadwood must be cleared. Some trees are dying and need to be chopped down. Some trees are splintered but are basically sound because the roots are firm. It's a matter of judgment which ones can be saved and which have to go. If you try to save them all, you're in trouble.

How about building a fence around the trees, as Malaysia's Prime Minister Mahathir Mohamad has done?
Mahathir is a most determined man. If he uses the time he has bought, 12 to 18 months, to attack Malaysia's problems at their roots, while his markets are protected from daily volatility, he can achieve a dramatic recovery. If the time bought is not used to attack the basic problems, then the feel-good mood will pass.

What kinds of curbs do you yourself think need to be imposed on capital flows?
The US wants complete free movement of capital. So do all the advanced countries. They've got systems that can take these surges of currency flows. Any country wanting to join that power grid has got to be sure it's got all the transformers, substations and circuit breakers. If the surge is stronger than they can take, these arrangements can localize a blackout and prevent a full breakdown. It's up to each individual country to decide how completely they can plug in.

What did you think of [U.S. Vice President] Al Gore's speech at the regional summit in Kuala Lumpur, where he defended democracy and spoke out for Anwar Ibrahim [Malaysia's ousted deputy prime minister]? There are certain forms in Asia. If you want to insult a man you don't spit him in the face. Gore didn't spit Mahathir in the face, but he came pretty close. He could have made the same point without being so ostentatiously rude. Walking out before dinner and shaking hands in a stiff manner were designed to offend. For Americans, Gore reads well. It's a cultural gap.

Are important institutions like APEC [the Asia-Pacific Economic Cooperation forum] and ASEAN [the Association of Southeast Asian Nations] now stagnating?
Most leaders in the region are shellshocked. Intellectually, they can calculate what has happened, but emotionally they have not accepted the consequences of what has happened. From their point of view, they didn't do that much wrong. They didn't cheat or rob anybody. They simply borrowed foreign money, which they invested wrongly. The punishment was out of all proportion to their crime, and they are in a state of shock. It will take some time to get the balance and the perspective right. ASEAN will recover its balance. The need for an organization like ASEAN to bring the countries of Southeast Asia together so they can have a better bargaining position vis-à-vis the Chinese, Japanese and Americans--that hasn't changed.

Has the case against Anwar set back the cause of getting new leadership in the region?
Whether it's Mahathir and Anwar, or [Indonesia's] Suharto and Habibie, a generational change will take place. I feel sad for both Mahathir and Anwar, but sadder for Mahathir. He has spent 16 years nurturing a strong successor. At 73 he may not have time to nurture another. Anwar, on his part, is a personable leader who has made influential friends in top positions around the world. He's only 50 and had all the time in the world. I did not understand why his supporters made a bid earlier this year to displace Mahathir. Now their public exchanges have diminished Malaysia's institutions of government. The people of Malaysia are the biggest losers. It's an immense pity.

On a regional level, are you optimistic or pessimistic about the generational change? in
On balance, I am optimistic because the next generation is better educated. Most countries have an intellectual elite that is knowledgeable about the contemporary world and with fewer chips on their shoulders. The fighters for independence were driven by visceral urges: "Down with the white man and let's be free." They didn't have such an educated elite 30 years ago. The question is whether Indonesia can build the institutions to execute the ideas of the leaders. Malaysia has that institutional capability. The British left them a system. They've tinkered and fiddled with it where it does not suit them, but it's still ticking. Page 2 of 3

Is the crisis creating opportunities for Singapore, for example by creating an opening to trade in Hong Kong market futures?
We were going this route with or without a meltdown. I don't know why Hong Kong is concerned about it. Their man in charge of the futures exchange has said, "We welcome competition." It's their financial secretary, Donald Tsang, who is complaining.

Didn't Singapore try trading Hong Kong futures unsuccessfully before the crisis hit?
There was no interest in it then because East Asia wasn't in turmoil. People buy futures contracts when there's volatility. There was then no volatility. This is open, fair competition. Hong Kong has got a group of good men in charge, but without experience in crisis management. The British did not put them in charge long enough to develop that cool in a storm. Our officials have gone through many squalls in the last 35 years.

How long will the Japanese stay in trouble?
I don't see them coming out of this trough for another year or so. It's a longstanding cultural problem. I asked one Japanese top banker from a sound bank, "Why don't you do it the way the Americans tell you? Recapitalize the good ones, let the others fail." He said, "It's not the fault of my colleagues. I don't think they should go down. It was the bubble, and we were all in it." They are trying to save many banks. Maybe they have the resources. But the question is: will you change management or management style if you are not punished?

How will Singapore adjust to this crisis?
We must take advantage of these few years of slow growth to make the tough reforms which will enable us to spring ahead when the crisis ends. We've got to be ready to lose all those segments in industry and services where we are overpriced because they use much labor. Our wages are too high--made worse by a strong currency.

For 1998 we are getting around $7.8 billion worth of investments, close to last year's $8.5 billion. They will create fewer but better-paying jobs. These investments require a highly educated work force supported by a sophisticated physical and administrative infrastructure. Unfortunately we have many workers aged 40 to 50 who are not schooled enough. Temporarily we are hanging on to industries that should be relocated, buying a little more time by cutting costs. We can never be as cheap as Malaysia or Thailand.

We have started to retrain these workers to use computers and to do the things that the kinds of jobs we are getting require. Our strategy is simple: capitalize on our strength, stability, efficiency, low investment-risk ratings, to get high-value-added jobs which our neighbors will not be able to do until their workers are better trained.