Stirrings of Mutual Recognition

The newly industrialized countries (NICs) of East Asia and Latin American liberal democracies have at least this much in common: The end of the Cold War, the "third wave" of democratization, and the consolidation of more uniform rules and institutional procedures concerning international investment and trade have presented them with increasingly convergent international opportunities and constraints. The East Asian financial crisis of 1997-98 and the recent advances of democracy in Indonesia, South Korea, and Taiwan underscore this parallelism and prepare the way for broader comparisons between these two large regions. As opinion-formers on both continents adjust their frames of reference to include the experiences of their counterparts across the Pacific, it becomes possible to detect stirrings of mutual recognition.

Between mid-1997 (the floating of the Thai baht) and early 1999 (the devaluation of the Brazilian real), the new democracies and recently liberalized economies of East Asia and Latin America found themselves cross-referenced and interconnected as never before. At one stage in the crisis, the dominant concern was to reassure the markets that the processes of liberalization and institution-building in Latin America had proceeded to the point where it would be insulated against "contagion" from the Asian financial turmoil. When this effort failed, the door was opened to a more frank and balanced two-way interregional comparison. In addition to the regionwide contrasts discussed below, a series of more specific comparisons also arose. When Malaysia successfully defied prevailing orthodoxy and imposed controls on capital movements, it led to a reevaluation of Chile's milder but similar policy. When Hong Kong's currency peg proved capable of surviving, it reinforced confidence in Argentina's convertibility plan. Indonesia's eventual withdrawal from East Timor conveyed a clear message to any other military establishment contemplating extreme measures to control insurgency in dissident provinces. To some extent, this cross-referencing operated in both directions. Mexican president Ernesto Zedillo had benefited from a fairly democratic electoral mandate, which helped him to maintain political cohesion during the 1995 peso crisis. There was a parallel here to South Korea at the end of 1997, when the currency collapsed on the eve of a highly contested presidential election. Similarly, Chile's success in preserving its dynamic economic model while coping with democratic alternation carried reassuring implications for Taiwan on the brink of its own presidential elections.

Although the mechanisms of interregional transmission and contagion were essentially financial, the linkages that emerged were much broader. Questions of political structure, as well as of economic performance, arose. Long-term development paths were reassessed, not just immediate crisis-management capabilities. The vast implications of the commitment to economic and political liberalization became apparent. In general, the crisis had a sobering effect. It dampened enthusiasm for headlong liberalization, although without generating a clear alternative. Doubts surfaced and half-digested counterproposals were floated, but the underlying assumption of the inevitability of further liberalization was not broken. On the contrary, after the Brazilian devaluation the financial climate cleared. "Emerging" economies regained access to global capital markets, trade prospects improved, and most of the new democracies resumed something approaching their "normal" political routines. The East Asian economies are recovering faster that those of Latin America, but within both regions, national and sectoral divergences are striking. Banking systems have been weakened on both sides of the Pacific. There are also marked tensions and uncertainties over democratization in both regions. Hence the cross-regional comparisons that seemed so urgent at the height of the crisis have begun to fade from view. Yet the logic of global liberalization persists, and the broader linkages, comparisons, and contrasts that commanded attention a couple of years ago are likely to resurface over time, either under the spur of further crises or as the long-term consequences of alternative development paths unfold.

Sequences and Geopolitics

Contrasting sequences of democratization and economic crisis provide one standard way of distinguishing between the two regions. In Latin America, the...