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Lost Leaders

The current world economic crisis has its roots in widespread political failure

By Johanna McGeary

What a telling picture the Moscow summit made. Bill Clinton looking weary and spent, his head sunk in his hands, his lips tight in a glum line as reporters badgered him about Monica. Boris Yeltsin next to him, befuddled and disoriented as he struggled to link answers coherently to questions. When a journalist asked whether the Russian President would accept someone other than Viktor Chernomyrdin as nominee for Prime Minister, Yeltsin paused for a moment that grew painfully long. "Well," he finally said, "I must say, we will witness quite a few events for us to be able to achieve these results. That's all."

Huh? The scene crystallized fears that the world's top rulers have lost their direction at a time when leadership is desperately needed to pull the global economy out of its tailspin. If confidence lies at the heart of finance, Russia stands as a metaphor for how much of it has been lost. Instead of propping each other up at this most surreal of summits, the two key Presidents seemed to be dragging each other down. Clinton's lackluster public performance only seemed to emphasize the feeble condition of his host country. Yeltsin's failing faculties and crumbling power base reflected badly on the strong backing the U.S. has given him. At one level, Clinton's tough-love advice to "play by the rules" of free-market democracy is sound advice, but it may well be ignored. To citizens around the world anxiously weighing the turbulent course of events, the summit looked like Potemkin leadership.

The ill-timed meeting spotlighted how much the financial crisis rippling around the world is not simply an economic breakdown but a political one as well. Russia was exposed as a country with no government and no plan for recovery. The massive dislocations in country after country lay in the mismanagement or malfeasance of top political and business figures, and the difficulty the world is having in repairing the damage owes much to a set of leaders who are weak, venal or tarnished.

The sweep of the political breakdown is astonishing. In Thailand, where the disintegration of the baht one year ago set off the tidal wave, the Prime Minister presided over a spectacularly corrupt regime. General Chavalit Yongchaiyudh, a former army chief turned politician, wasted billions propping up ailing finance companies owned by political cronies. When the currency crumbled under the pressure, he chose to throw good money after bad in a futile attempt to avoid a humiliating devaluation.

Malaysia's cantankerous, 72-year-old Premier Mahathir Mohamad, strongman for 17 years, ran a one-man show with total control over the country's economic machinery. In his obsessive search for respect from the West, he spent lavishly to build the biggest and the tallest--the world's tallest skyscraper, the highest flagpole, the tallest control tower--wasting the foreign investment that streamed eagerly in.

When the country's currency and stock market came crashing down of its own weight, Mahathir blamed outsiders--a cabal of speculators, Jews and enemies of the developing world. To replenish the treasury, he asked the rich to pawn their jewelry overseas and bring the money back to Malaysia. To cut a huge foreign bill for food, he asked people to plant vegetables in their front yards. Last week Mahathir took the bold step backward of withdrawing Malaysia from the global economy, sealing off its currency from outside trade and sacking the pro-market Finance Minister. Absurdly, he also found time to attempt a world record by leading 1,998 Malaysian-made cars in the world's longest convoy.

Indonesia too continued to receive billions in foreign cash despite years of the most egregious corruption and nepotism sanctioned by President Suharto. Apologists argued that funneling contracts to his children did not matter too much since the projects--new roads, factories, airports--did get built. If they cost more than they should have, the projects still contributed to annual economic growth of more than 6.5% for 25 years. When the "corruption surcharge" helped destroy the rupiah and emergency austerity measures threatened to starve a population where almost 50% are now on or below the poverty line, riots drove Suharto from office. In his place came the eccentric B.J. Habibie, who may have good intentions but probably lacks the popular support to translate them into reforms. "Indonesia," says Miranda Goeltom, a director of the central bank, "is no longer ruled by one man who can determine everything."

These leaders were guilty as well of believing there was something unique about Asia's economic growth: that it would continue unabated regardless of leadership or official policy. That myth was perfected in Japan, where the entire ruling system was set up to avoid the necessity of any single person's taking responsibility for anything. The country's clan politics worked well enough when there were sufficient spoils to spread around. But when trouble loomed, there was no mechanism to produce a leader capable of making difficult decisions in the national interest.

Japan's crisis, perhaps the root cause of today's economic turmoil, occurred in slow motion, giving plenty of time for its leaders to step in with the hard but manageable changes required to forestall full-scale recession. Over eight years, land prices crashed and then stock prices, and then the entire banking system threatened to cave in. But the country's politicians and bureaucrats repeatedly buried their heads in vain hopes that the problems would just go away. Having let its own ailments fester for years, Japan was in no position, despite its wealth, to help when its neighbors began to crumble.

At a minimum, Asians expected Japan to contribute by setting its own economic house in order. So far, it hasn't. Japan's leaders still show no stomach for revamping their financial system and slashing regulations that coddle business. No one has shown the interest or strength to break the money links between inefficient industries and the ruling party. Party politics and bureaucratic inertia ground down the reformist plans of the last Prime Minister, and he has been replaced by a cookie-cutter party man with what a Tokyo commentator called "all the pizazz of cold pizza."

It is hardly surprising that Russia should be hardest hit of all. Its leaders have been in place for only seven years, but in that time they have failed utterly to create viable institutions of power. Under Yeltsin, Russia acquired the trappings of a civilized state: an office of the President, a federal parliament, private banks. But they only looked authentic. The presidency resembled the throne of the Czar, upon which the entire welfare of the nation rested. But the erratic Yeltsin is physically and politically out of touch, having lost control of his Cabinet, the parliament and the people. The Duma, supposedly a representative legislature, is hardly that at all. Except for the Communists, Russia has no real political parties, so most of the Deputies vie for power rather than enacting the laws Russia needs. The banks have served all too often as the private preserves of robber barons.

The more the sick nations grasp the failures of their own leaders, the more they long for some outsider to set things right. Fairly or not, the burden of leadership ultimately falls on the U.S. Clinton ought to be the reassurer of last resort, but he is distracted by the Lewinsky scandal, and many are concerned that his personal stature and moral authority are seeping away. His attention to foreign affairs has always been intermittent but surely diminishes the more time he must spend with his lawyers.

Clinton has been a good student of international economics, grasping the inexorable forces that are changing the shape of the world day by day. Some critics fault him for settling for a country-by-country approach instead of trying to build a new world economic architecture. In any case, that policy is foundering as weak governments fail to give the markets what they demand.

More ominously, the much heralded march of market economies and democratization is stalling. Russia is tempted to return to a command economy and strongman rule. The authoritarian impulses of leaders like Malaysia's Mahathir are showing the ugly side of the "Asian values" that were touted as a ticket to prosperity and order. Instead of standing tall, the world's leaders seem hunkered down, adopting timid defensive measures rather than the forceful steps each nation needs. In every country there are very difficult domestic politics that confine leaders, and globalization surely makes life more difficult for statesmanship. To some extent there is an inescapable logic built into the phenomenon: you cannot have both laissez-faire and command-control; you cannot say leaders should get out of the way of the economy, then whistle them back to fix things when there's trouble. Yet in the end, trust and confidence can be at least as important as monetary policy or banking reforms, and those, surely, are well within the job definition of a leader.

--Reported by Jay Branegan with Clinton, Donald Macintyre/Tokyo, Terry McCarthy/Hong Kong and Yuri Zarakhovich/Moscow

In TIME This Week

Cover Date: September 14, 1998

Now Say It Like You Mean It
The Politics Of Yuck
Topic A
News, Newser, Newsest
The Tonic Of Peace
Lost Leaders
Bummed Like Me
A Senator and Old Friend Delivers a Stern Sermon
Holding Their Own
Can Tony Williams Save D.C.?

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