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June 9, 2000 VOL. 29 NO. 22 | SEARCH ASIAWEEK

David G. McIntyre -- Black Star for Asiaweek
Scenario: "China is undergoing a transformation due to the Internet; this will cause it to change politically"

LKY On Asia Ahead
Singapore elder statesman Lee Kuan Yew ruminates on everything from Korea's summit to the digital revolution

For Asia, these are interesting times. The Koreas are about to hold a summit that promises to change the balance of power in that part of the region. Relations between China and Taiwan are at a turning point; the two could move toward negotiation -- or confrontation. Indonesia is holding together so far, but could easily again descend into chaos. The New Economy is a bold new force that may totally transform Asia. To gain insights into these and other epochal events and trends, Bernard Krisher, publisher of The Cambodia Daily and former Tokyo bureau chief of Newsweek magazine, recently talked with one of the region's foremost elder statesmen, Singapore Senior Minister Lee Kuan Yew. Excerpts from a quick primer on Asia:

What do you expect out of the Seoul-Pyongyang summit?
If the North Koreans are convinced that the South does not want to undermine or take them over, and in fact wants to gradually improve their economy and living standards so that eventually the two can be more or less akin to each other in standards, that would help ease tensions. Then [Pyongyang] would open up to investments, tourism, and changes in society would take place. A meeting that facilitates such a development will be positive.

Are you optimistic?
The fact it's taking place is a positive sign.

Will China one day become more liberal and democratic, so that Taiwan might feel more compatible with it?
I think it's inevitable. China is undergoing a transformation due to the Internet, computers, wireless communications and WAP. They will cause China to change socially, and also change politically. But it doesn't follow that it will be easier for Taiwan to meld into China. They are two different things. Taiwan has been separate since 1945 with the Kuomintang. Since 1988 with its own, native Taiwanese president, Lee Teng-hui, it has gone off in a different direction. They see little to gain by becoming a part of China but, unfortunately, becoming part of China is what will happen if China doesn't disintegrate. I do not see any country being able to prevent that reunification.

What lessons can Indonesia's current leaders learn from the experience of Suharto's downfall? Will the country survive or collapse?
There are so many lessons, too many to enumerate, but concentrate on institutionalizing good governance. The tragedy of 32 years of Suharto's Indonesia was too much power centered in the president as ruler. Institutions such as the legislature, the courts, the law, an effective police force, were not developed. The result was the chaotic conditions when central control broke down because there were few institutions the new leaders could fall back on to hold things together. If institutions exist, you can change direction but under a functioning system. In contrast, all was personalized around the president so when the powerful personality was removed, large bits and pieces just broke away.

Can Indonesia still establish such institutions now?
It will take a long time. It's not something that can be created in one or two presidential terms . . . At this stage Wahid is still the best person to hold Indonesia together. The band- aid for him is to delegate the economic management to a group of ministers that's coherent and works with the International Monetary Fund and with the international banks to restore confidence, get investment back and the economy going. That is crucial.

Turning to Malaysia, was PM Mahathir Mohamad's way of confronting the economic crisis right? How can Malaysia improve its battered international image?
Dr. Mahathir will totally disagree with you about Malaysia's international image. He has had a bad Western press, but the country is up and running. Its closing of the Malaysian ringgit was not orthodox IMF policy but it has worked as well as any IMF policy. Therefore he is vindicated.

Malaysia faced a political crisis when Anwar Ibrahim was sacked. Can there be political turbulence again?
I do not think that there will be another political crisis. There may be another financial crisis sweeping through the region in the future. No one can foresee this. But institutions and conventions exist in Malaysia for a constitutional succession, without disrupting the whole country.

Burma's economy suffers severely as the U.S., the E.U. and other parties impose sanctions for the military regime's failure to loosen its tight grip. How can the Burmese people attain a level of economic and political development?
The European Union boycott and American prohibitions are not seriously handicapping Burma. The ASEAN countries have invested in tourism, hotels, etc., but the Burmese have implemented policies that have aborted the process of development. They changed their policies after the fall of Suharto in Indonesia. They fear that opening up might lead to the same sort of problems. These wrong policies have risen out of a fear of losing political control. How to put it right? Only when they realize that cutting off the flow of trade, investment and tourism will make it worse, that non-development with an increasing population will mean increasing discontent due to little development with few job opportunities and a poorer life compared with their neighbors. That will force them to open up again.

Is that the case with Vietnam too?
Yes, when they fear that they are about to lose social control, they hold back and reverse policies which they have agreed with investors. This undermines confidence. Their younger officials know what is needed, because they have seen the outside world, understood how the other countries in ASEAN have progressed, but they are not in charge. The leaders in charge are the old guerrilla commanders who have a different view of the world, a different mindset. They put security and control over the population at the top of their priorities.

How can developing countries more effectively narrow the gap between themselves and the industrialized nations? What should the industrialized world do to contribute to narrowing the wealth gap?
The way forward is quite clear. The problem is that the internal conditions of the country must be such as to enable it to make use of the capital, technology, management expertise and markets of the fast-growing regions of the world. Then the developed world can lift up these countries. But if you are stuck in civil wars, like Sierra Leone, or Congo, or Rwanda and Burundi, then these development options are not open. The inputs cannot go into a country that is not ready to receive them. The problem is to have leaders who are able to create the conditions that will attract these inputs that will generate jobs, wealth and prosperity. Leaders must establish stability, law and order, and a certainty. So if people work hard, study hard, there's a reward; not when you take a gun or a knife to rob people. If you have peace and stability with no strikes nor riots, labor will be productive. Investors will make use of your cheaper labor, cheaper rents. They will bring their capital.

That's the way [Singapore] started. We educated our people so they became more competent and could do higher-end jobs. The lower-end factories moved out while better equipment came in. [Now] we are making disk drives, computer peripherals, wafer fabs, petrochemicals, fine chemicals, pharmaceuticals. But that has been a 40-year process.

Is there a role in all this for Japan to play?
Yes, definitely. Japan has the capital, technology, management expertise, and the experience of investing, producing and exporting from abroad to almost anywhere in the world. But they have to be confident they can make profits, that over the long term their investments will bring them returns at least as good as what they can get at home. Japan has been doing that throughout Asia, America and Europe, and increasingly in China and India . . . If developing countries try half as hard as Japan, they will thrive and prosper.

How will the digital revolution contribute to the development of the poorer countries?
It will enable them to leap-frog many technologies. They can use the Internet for education, training, accessing information worldwide, attracting investments, seeking markets for their products. It's a facilitator, a powerful tool to lift themselves.

Some of these countries argue that there are also negative factors. People in government may not welcome the Internet as it has a tendency to undermine a regime. Pornography sites can have a bad influence on children. Cultural and national values can be diluted. Viruses can cause economic havoc.

There are all these minuses, but you've got to decide whether because of these minuses, you are going to forgo the benefits of the digital revolution. Whatever the disadvantages, Singapore is in no position to reject this technology. To reject this technology will be to marginalize and blindfold ourselves. It can't be done.

You try as best as you can to contain the negative factors. Eventually we will need international agreements about what's undesirable and bring the independent service providers under some system where pornography, sadism, violence can be outlawed. As for viruses, there are ways to stop them; either individually at your computer desktop or through the independent service providers filtering what comes through. It means some delay while they check and allow virus-free material to go through. They can alert and ask you whether you want to receive suspected virus-filled material. It's a question of time and technology.

Do you see a danger to potential tax revenue if e-commerce grows?
No, because eventually you have to move actual goods. You can have a contract on the Internet, but unless it is something you can sell in digitalized form through the Internet, you have to move goods. I can agree to buy a pair of boots or denims or whatever. Finally, it must come through a carrier or the postal service. I'm sure the tax collectors will find a way to make sure that government revenues are not depleted.

How do you assess the performance of the U.S. since it became the sole global power to contend with? What's positive, what's negative?
The positive is that there's less disorder and inhumanity which would have gone on in Bosnia or Kosovo. They stopped because of the capability of the Europeans with the help of the Americans to bring force to bear. But when it comes to Chechnya, the price of intervention would be horrendous; hence inhumanity goes on. There are other positive sides. The U.S. market has been relatively open and as a result many, including the badly affected East Asian countries, have been able to recover helped by exports to America. At the same time, however, unilateral actions threatened or taken by the U.S. using [the] Super 301 [list of alleged trade offenders] are quite contrary to WTO rules. This wouldn't happen if there had been a countervailing power to balance America. So it's both a plus and a minus.

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