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By Ronald D. Palmer

Part IV

Economic Growth
Since the 1970-1980 period is the key decade

before the recession of the 1980s and the

beginning of globalized capital flows, it is

useful to stop momentarily and compare 1970

and 1980 data.

    Indonesian GDP was 8.5 billion rupiah in 1970 and nearly doubled to 17.6 billion in 1980.

    Malaysian GDP nearly tripled, from 15.8 to 34.2 billion ringgit, in the decade.

    Philippine GDP almost doubled, from 83.4 to 154.9 billion pesos.

    Singapore GDP more than doubled, from 8.5 to 18.4 billion Singapore dollars by 1980.

    Thai GDP almost doubled, from 220.2 to 432.2 billion baht.

In short, from 1950 to 1980, economic nationalism

had been a successful strategy in Southeast Asia.


The 1975-1985 era began with the fall of Vietnam, Laos, and Cambodia to communist forces in 1975.

     • Laos was the least developed of the three, both economically and politically. Despite the abdication of King Savang Vatthana, the new successor communist regime was drawn from the same élite that had previously served the monarchy. Nevertheless, Laos like other communist regimes had its era of rehabilitation camps, retribution against minorities such as the Hmong, who had been allies of the United States in the war, and other political undesirables. However, this period was transitory and Laos soon sought to establish normal relation with the United States, Thailand, and the World Bank. Indeed, Laos came under virtual World Bank tutelage. Lao development was slow in the 1970s.

     • Cambodia underwent savage Khmer Rouge oppression from 1975 to 1979. Perhaps two million of its citizens were murdered. The intelligent, the literate, the urban, were declared to be the class enemies of the Cambodian people by the Khmer Rouge. A generation of recovery, learning, and development was lost. The Khmer Rouge sought to make time stand still or go backwards.

     • Vietnam was flushed with victory in 1975 and jubilantly adopted a virtual carbon copy of the Soviet Russian development model. The generation of aging leaders who had successfully waged war were convinced communist ideologues, but they proved unable to apply ideological organizing principles to the homely problems of economic development. One feels that the Vietnamese leadership turned to making war against the Khmer Rouge in December 1978 with relief. Waging war was something they knew how to do. The Soviets subsidized the Vietnamese war effort in Cambodia. They also made vast amounts of low-cost fertilizer and energy supplies available. Strains on the Soviet economy became evident in the 1980s, however, and by 1985, when Gorbachev assumed power, the Soviets were forced to cease their support of the Vietnamese economy.

As the 1970s ended, economic nationalism and crony capitalism were firmly entrenched in
Malaysia, the Philippines, Indonesia, and Thailand. Corruption was also deeply rooted in these economies. Singapore had waged war on corruption and relentlessly pursued vigorous human and social engineering programs. Singapore was the first location of American microchip producers seeking low-cost, labor-intensive production environments. The Singapore government quickly perceived the limits of labor-intensive industrialization; by 1977 it had deliberately raised the cost of its labor and launched a program to attract higher-tech investment, with special emphasis on computers and computer peripherals.

Malaysia and Thailand eagerly sought to capture the labor-intensive overflow from Singapore. These countries, the Philippines, and Indonesia, also enjoyed a boom in the prices of their commodity products (rubber, tin, palm oil, oil, timber, apaca, bananas, etc.) in the late 1970s. However, Indonesia was suffering the effects of oil-led dependency and corruption as the 1980s began. Suharto faced strong opposition from influential retired and active duty military leaders. But by 1980, Suharto's political machine was able to crush such opposition, although it was clear a new economic strategy was needed. The World Bank offered a strategy based on non-oil development, including opening the economy to foreign investment. Suharto's family became one of the main beneficiaries of such investment.

The Philippines plowed onward economically in the 1975-1985 period in the grip of the Marcos cronies. The 1983 murder of Benigno Aquino hastened the implosion of the Marcos regime in 1986. Corazon Aquino became president of the Philippines, but inherited an economy in negative growth, strangled by the landed élite.

The Malaysian economy went into recession in 1982 as commodity prices fell and huge state interventions in favor of the Malays went sour. Upper class Malays had been favored with generous loans, but unproductive loans were ruthlessly terminated. Mahathir turned to younger, able, middle-class Malays instead. They became the new entrepreneurs and the Mahathir goverment worked closely with them to attract foreign investment in 1985-1986. It gave up its cool and distant attitude toward foreign investment. Foreign investors had been limited to forty percent ownership of enterprises. They were allowed now to have 100 percent ownership of enterprises particularly if output was entirely for export. Other generous provisions for both foreign and domestic investors were attractive to both local Chinese and Taiwanese investors.


Little progress was taking place in Laos as the 1975-1985 period ended.

Vietnam was mired down in the Cambodian war in 1985. At that time, when Gorbachev took power in the Soviet Union, Vietnam was informed that Soviet economic problems were so severe that its military and economic assistance would be ending. This put pressure on the Vietnamese leadership to adopt new policies. If Russia were no longer to be a strategic partner, Vietnam would be forced to improve relations with the America. Movement toward the development of such policies began at the Sixth Party Congress of the communist party of Vietnam in 1986. The wartime leadership was retired and market opening policies adopted. Vietnam began withdrawing its military units from Cambodia and seeking normalization of relations with the United States, including supporting U. S. efforts to account for servicemen missing during the war. The Seventh Party Congress took place in 1991 and confirmed these policies. Meanwhile, Vietnam began achieving seven and eight percent rates of growth. Relations with the United States were normalized in 1995 and Vietnam entered the Association of Southeast Asian Nations (ASEAN).

Thailand had begun its own boom in 1986 when a civilian-oriented regime took over from a military government. The boom gathered strength as Vietnam wound down its war in Cambodia and the Thai began an effort to become the economic leaders of mainland Southeast Asia from China to Malaysia. As Japan made Thailand an important platform for offshore production, growth rocketed along at eight percent a year. This prosperity provoked military interest in another takeover in 1992, which was met by widespread Thai civilian resistance. The greed and corruption of what became known as the ATM government set new records. Still, the frenetic pace of economic activity masked deep instability; the Thai economy was perched on a foundation of overvalued assets.

History will record that
Philippine President Corazon Aquino performed a political miracle in her 1986-1992 term of office. Despite six attempted military coups against her government, political stability was maintained. Indeed, Mrs. Aquino somehow restored public confidence in the political system again after the excesses of the Marcos period. Fidel Ramos won the 1992 presidential elections with only twenty-six percent of the popular vote and there was no public protest. But Aquino's economic record was unremarkable. When Ramos became president in 1993, he inherited an economy still in the stranglehold of élite special interests.

Lee Kuan Yew stepped down as prime minister of
Singapore in 1992, but he continued as senior minister and continued to look balefully over the shoulders of his designated successors. These men, including his son Lee Hsien Long, have done an excellent job in running the economy. Singapore was hit only a glancing blow by the 1997 crisis.



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