That all began to unravel in 1995, when the dollar began a sharp rise in value against the yen. Japanese banks began reeling in their US$176 billion in loans to Southeast Asia, creating a credit crunch that some economists say helped touch off the financial crisis two years later.
While the crisis set in motion politically painful efforts to rely on more genuine market forces in place of the iron triangle of governments, banks and conglomerates, the Internet boom served as a temporary anesthetic over the wounds. Asia's export machine revved back into high gear, pulling Southeast Asia's economy out of recession, but leaving the region more reliant than ever on electronics exports, particularly to the US.
"They're over-dependent on electronics,'' said David Cohen, an analyst at Standard & Poor's MMS International in Singapore. Electronics exports accounted for roughly half of Singapore's economy, according to Goldman Sachs, and slightly more of Malaysia's. Now that demand from the US has collapsed, Singapore's economy has fallen into recession. Malaysia's economic growth slowed to 0.5 percent last quarter after bounding ahead 8.5 percent last year.
Japan's shrinking role in Southeast Asia has now become a source of political tension. In April, finance ministers from the Association of Southeast Asian Nations, which groups together all 10 of the region's members, formally censured Japan for allowing the yen to decline so much, a move that helps Japan's own exports at the expense of Southeast Asia's own competitiveness.
Japanese companies are clearly aware of the political dimension to their investment. "Our No. 1 priority is to develop each country's economy," said Makoto Mihara, a spokesman for Matsushita Electrical Industrial in TokyoMatsushita recently posted its first loss in more than 50 years.
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