INCREASING PROSPERITY AND FINANCIAL CRISIS

The trend toward more representative systems of government has been due in part to increasing prosperity and the growth of an affluent and educated middle class. Although Indonesia, Burma, and the three Indochinese states are still overwhelmingly agrarian, Malaysia and Thailand have been undergoing relatively rapid economic development. In the late summer of 1997, however, these economic gains were threatened, and popular faith in the ultimate benefits of globalization was shaken as a financial crisis swept through the region. The crisis was triggered by a number of problems, including growing budget deficits caused by excessive government expenditures on ambitious development projects, irresponsible lending and investment practices by financial institutions, and an overvaluation of local currencies relative to the U.S. dollar. An underlying cause of these problems was the prevalence of backroom deals between politicians and business leaders that temporarily enriched both groups at the cost of eventual economic dislocation. As local currencies plummeted in value, the International Monetary Fund agreed to provide assistance, but only on the condition that the governments concerned permit greater transparency in their economic systems and allow market forces to operate more freely, even at the price of bankruptcies and the loss of jobs. In the early 2000s, although there were signs that some political leaders recognized the serious nature of their problems and were willing to take steps to resolve them, the political cost of such changes remained uncertain.