Thailand is only the tip of Asia's iceberg

Rather than add my voice to the chorus pointing out how much damage ongoing protests are doing to Thailand's economy, I'm tempted to skip ahead and write its obituary. Cause of death: suicide.

What else is there to say about the semi-permanent state of emergency and political gridlock in Bangkok? Sooner or later, foreign companies are going to start voting with their feet, as Kyoichi Tanada, president of Toyota Motor Corp's Thai unit, warned this week. Tourists fearing cancelled flights and the odd bomb explosion are going to stop filling the beaches. Neighbouring countries are going to look for other solutions to their logistical and infrastructure needs.

In their give-no-quarter battle for supremacy, Thai politicians aren't just making Democrats and Republicans in Washington seem reasonable: They are also destroying the country's potential.

Scarily, though, the region may have an even bigger problem to worry about. The circuslike dysfunction in Bangkok is unique. The weaknesses being exposed there are not. From Thailand to Indonesia to Malaysia - even as far as India - Asian nations are displaying an extremely worrying set of shared vulnerabilities.

Across the region, debt-fuelled growth is wrecking household balance sheets. Large subsidies are draining government coffers. Asset bubbles in real estate and equities continue to swell. Current-account worries are eating away at currencies. The gap between rich and poor is widening. And once-frothy markets are dangerously exposed to Federal Reserve tapering and rising political risks.

I fear this combination of factors could be pushing the region toward another crash, perhaps in the very near future. This would probably be more of a mini-crisis than a 1997-like meltdown, as the risk appetites of investors veer away from iffy-looking emerging markets. Regardless, governments have no one but themselves to blame. They've utterly failed to use the heady growth of recent years to strengthen financial systems, wean their populations off unsustainable handouts, improve infrastructure, or create safety nets to catch those bound to suffer most from slowing growth.

Thailand is merely a microcosm of what ails the region. Take Prime Minister Yingluck Shinawatra's disastrous rice-subsidy scheme, which has blown a $4 billion (at least) hole in the nation's fiscal position. Instead of enriching rural areas, it's distorted commodity markets and caused a buildup of more than a year's worth of rice for the rats to eat. Meanwhile, a $61 billion infrastructure-improvement plan to increase Thailand's attractiveness as a business hub remains on hold, as do water projects meant to raise living standards.

More than street protests, government incompetence and neglect are to blame. The same holds true in countries that look far more stable on the surface. In investment-darling Indonesia, President Susilo Bambang Yudhoyono has been missing in action for much of his second term. Rather than fix the country's current-account problem, Yudhoyono has enabled a level of creeping economic nationalism that is turning off foreign investors.

It would be great if mining companies refined mineral ore in Indonesia before exporting it, creating local jobs and increasing revenues. But the way to encourage that is to provide incentives, not to ban exports or institute punishing taxes that drive business elsewhere. Similarly, government attempts to force Google Inc. and Yahoo! to build data-processing centres in Indonesia send an unintended but clear message to the world's tech giants: Move to the Philippines instead.

Smugness imperils Malaysia, too. Instead of ending the country's Malays-first affirmative-action scheme - which impedes foreign investment and warps corporate governance -Prime Minister Najib Razak has expanded the program. The waning popularity of his United Malays National Organisation has slowed efforts to end budget-busting subsidies. Similar examples of populism trumping progress can be found in such places as Vietnam, Brunei and Myanmar. Even the most first-world of Southeast Asian economies-Singapore-has some worried.

The common denominator in all these countries is weak leadership, and it's appearing at the worst possible moment. The rapid growth Asia has enjoyed since the 2008 global crisis had more to do with Ben Bernanke than we like to admit. All that hot money pumped up gross domestic product, boosted asset prices and pushed yields lower to make government debt loads appear manageable.

The Fed chairman's largesse made growth too easy. It bred hubris. Officials in Bangkok, Jakarta and Kuala Lumpur were too busy cutting ribbons, toasting flashy new skyscrapers, applauding splashing initial public offerings, and basking in headlines about Asia having decoupled from the West to do their jobs properly.

Thailand may offer the clearest example of how the Fed's ultralow interest rates helped cover up deep-seated structural problems in emerging markets. But as the Bernanke bubble deflates, officials across Asia will regret ignoring the well-nigh suicidal course that they're on.

The author is a Bloomberg View columnist.