Will the Tsunami Bring a Wave of Instability to Asia?

The tsunami, which left as many as 160,000 dead, hit countries with a tenuous hold on political stability – a province of Indonesia that is home to a violent separatist movement, a region in Sri Lanka that is currently at peace but has fought a long-running civil war. Crises, whether natural or man-made, tend to beget political instability. Will the political aftershocks of the tsunami be even stronger than the initial quake? An earthquake of devastating magnitude struck, in 1976, not far from Beijing. As the survivors’ stories trickled out, the world rushed to China’s assistance. But the Chinese government refused all outside aid and claimed the situation was well in hand. Partly as a result, the casualty figures were, in the end, astronomical. At least 242,000 died – the official figure, released years later – and some reputable sources claim that over 700,000 perished. The problem was the timing. It has been a basic tenet of Chinese political philosophy for more than two millennia that governments rule with the “mandate of heaven,” and that natural disasters – including floods, droughts and earthquakes – are a heaven-sent signal that this mandate has been revoked and the leadership had failed. In 1976, Mao was on his deathbed, and the unsteady Chinese government feared the political consequences of the quake. Lest anyone conclude their mandate was up, the government tried to cover up the earthquake’s magnitude, at the expense of Chinese lives.But then, Confucian teachings aside, there is ample precedent that natural disasters beget instability. Simon Winchester popularized the argument that the volcanic explosion which destroyed the Indonesian island of Krakatoa...

Can Indonesia Bounce Back?

Of the Asian crisis economies, Indonesia has suffered the longest and rebounded most slowly. Last month’s free and peaceful elections firmly established the country – the world’s largest majority-Muslim state – as a functioning democracy. But can it bounce back to its pre-crisis performance? Indonesia was always different. Most of the Asian crisis victims – Thailand, Malaysia, South Korea – suffered sharp cutoffs in foreign lending, but investment dollars generally stayed put. Indonesia, by contrast, experienced spectacular capital flight. Not at first. In the first two quarters of the crisis, inflows continued. And then, in three disastrous months in 1998, over $5 billion in equity capital fled the country. And in following months, more of the same. What happened? The answer is that in May 1998, Indonesians set upon their ethnic Chinese countrymen in an orgy of violence that claimed over 1,000 lives. The Chinese were hated for their wealth. Though four percent of the population, they controlled an estimated sixty percent of the country’s assets. And at that point, all these assets were sent offshore. Estimates of total capital flight top $20 billion. This triggered an economic meltdown far messier than anywhere else in Asia. South Korea, Malaysia and Thailand bounced back. But foreign direct investment into Indonesia actually turned negative and stayed that way into the new millennium. So will Indonesia rebound? The odds are long. To be sure, Indonesia has just accomplished something extraordinary. The world’s largest majority-Muslim country has become a genuine democracy. The incumbent candidate, competent but uninspiring, lost to a secular challenger with a reform agenda. The Islamic parties that did best in...