Riders on the storm

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In parts of Southeast Asia, old-style political turmoil is back. Democracy has made inroads in the region over the past decade, but regime change can still be messy, violent and protracted. In Thailand, red-shirted supporters of controversial former prime minister Thaksin Shinawatra have been demonstrating in the streets for months in an attempt to depose his successor, Abhisit Vejjajiva. Thaksin, a communications tycoon, was ousted by the military in 2006 for alleged corruption. Parties loyal to him won elections in 2007, but the results were overturned by the courts, which also confiscated more than half of his estimated $2.3-billion (U.S.) fortune. Abhisit was then installed by a parliamentary vote, not an election.

A generation ago, foreign businesses might have fled such a crisis. Or if they tried to hang on, they might have wheedled and bribed a new regime that was both authoritarian and economically incompetent. But the Asian currency crisis of 1997, and political and financial blow-ups in individual countries since then, have taught politicians, local corporate leaders and foreign investors a harsh and valuable lesson: If there is a conflagration, they can't afford to let it rupture or taint the business sector.

It was a lesson they all needed to learn. The Southeast Asian boom in the 1980s and 1990s created a lot of excitement about the so-called Tiger Economies, but it also fostered unhealthy and blatantly cozy relations between politics and enterprise. For foreign investors, betting on local corporations and dealmakers with patronage links to government was an acceptable and popular strategy. Many governments in the region, in turn, tried to rig laws, local markets and their currencies to benefit the ventures they favoured.

The 1997 crisis exposed much of the rot. The trouble became apparent in July of that year, when Thailand let its currency, the baht, float freely against the U.S. dollar. International speculators quickly zeroed in on economic weaknesses and unsound businesses throughout Southeast Asia. Currencies and stock markets plunged, slamming foreign investors and local tycoons.

In the first few years after the blow-up, only the bravest investors dared venture back into the region. The giant economies of China and India then surged ahead, and proved to be a bigger draw. Southeast Asia's scattered economies looked too small and risky in comparison.

Weak laws, arbitrary actions and lingering corruption in Southeast Asia didn't help. One of the most dramatic and bizarre incidents occurred in 2002, when a court in Jakarta declared the Indonesian unit of Canadian insurance giant Manulife Financial Corp. bankrupt after a deal with a local partner company went sour. Before the ruling, one of Manulife's top executives in Indonesia was arrested and imprisoned for almost a month, and only released following high-level cajoling and pressure from Ottawa.

Fast-forward to today and the changes in Indonesia, including Manulife's fortunes there, have been encouraging. Retired general Susilo Bambang Yudhoyono was re-elected president by a wide margin last year, in the country's second direct presidential election since the ouster of Suharto, the dictator who held power from 1967 to 1998. SBY, as he is known, rules over a country of 230 million people that is relatively stable economically and politically, and where annual GDP growth is a brisk 6%. Manulife has been operating smoothly for years. Last year, the company's revenue from new policies grew by 60%.

For foreign investors, the fundamentals of surviving regime change in volatile parts of Southeast Asia aren't complicated. Choosing the right partners among the local business elite is still a good first step. But it's best not to get involved too deeply or too publicly with politics. Democracy is still a work in progress in the region, and attempts to curry favour with any regime could backfire. Political crises and the odd natural catastrophe are, for the moment, simply parts of life that have to be endured.

In total, foreign direct investment in Southeast Asia is now about $60 billion (U.S.) a year, roughly double what it was in 1996. But with all the excitement over China and India, one would almost think the region had disappeared into the sea after 1997. It's now a market of 600 million people and a powerhouse economy with roughly the same total GDP as Brazil or Canada. The mature business environment, love of capitalism and a growing core of affluent families are delivering strong profits to foreign interests that base operations in the region or even just sell there.

Is it risky to invest in a country where there is chaos in the streets? In Bangkok in April, the Thaksin regime declared a state of emergency after red-shirted protesters invaded the nation's parliament, forcing some legislators to flee down a ladder and into a helicopter. The thing is, with risk comes opportunity.