If 2006 was a year of domestic and international fissures, where the fault-lines had widened the specter of crisis almost everywhere, don't expect 2007 to be any less so.

We've seen the carnage wrought in the Middle East by the stupidity of American policy. That's not likely to change in 2007. In fact, this year will likely be a defining one for a number of countries. Forget the fetish over the Chinese and Indian economies. Despite their highly uneven growth rates, averaging 9%, both will probably continue to underwrite capacity in the world economy. Australia, for example, is banking on this. It expects its resources export- dependent economy to maintain the 3%-3.5% growth rate.

Other national economies may not fare as well. Former industrial juggernauts like Japan and South Korea, once Asia 's 'dragon economies', will never regain their old glory. Their growth rates will be sustained at around 3%. And sustained is a good word in a world constantly faced increasing scarcity. Three percent GDP isn't so bad for Japan, where its rapidly ageing population has lesser aspirations than the younger generations. Japanese corporations will continue to export their production offshore, as they've been doing since the mid 1980s, especially after the Plaza Accord was signed in New York that realigned the yen to the greenback.

It's a different story, though, in Southeast Asia. An average 3% GDP seems reasonable, in long-run terms. It means regional governments, whose policies were once built on the foolish idea of growth-at-all-costs, are now no longer able to repeat that madness. In a world of growing scarce or finite resources, and whose prices continue to soar, it provides these governments to recalibrate policies toward sustainable futures. Otherwise the political and social costs will become items that no government will be able to control. It'll spell serious political and social problems for many regional governments.

To the millions of young people, especially the educated class, whose upward social mobility may be imperiled, low growth rates, in real terms, may see them not reap the kinds of wages or salaries growth that previous generations have enjoyed. The boom years of the 1950s and 60s collapsed in the 1970s and 80s, but this applied more to the West than Asia. Asia was by then in the throes of playing catch-up economics. Some policies were deliberate; others were by accident, carried along by the swathe of modern capitalism that cut through the region.

Asia's high growth rates, sustained over almost three decades, saw the emergence of domestic conglomerate capitalism. Much of this was family-owned; many more grew out of deliberate national policies of cronyism, nepotism and corruption. Malaysia is no exception. And there was also the highly dependent export-oriented capitalism which was dominated by foreign-owned multinational corporations who built their empires on very huggy state-backed tax incentives via free trade zones.

There was a jobs boom across the Asian region. Millions upon millions of people found work. And because there were millions and millions of them left on the margins still, national governments allowed local and foreign capitalists to exploit their own citizens left, right and center. Wages were perennially low. That hasn't changed. People then played their own catch-up economics with rising costs of living. They still do.

Debt-laden economies

For the most part national governments haven't learnt the lessons from the collapse of the Asian dragon and tiger economies in the late 1990s. More equitable redistributive policies are almost non-existent throughout Asia, but the shenanigans of old have seen global capital weave its 'magic' that still leaves its low-income citizens as vulnerable as do many national economies.

In the last few years foreign investors have been reaping solid returns on their investments. Twenty percent per annum returns were not uncommon. Most Asian share markets have been booming. Hong Kong's has been a darling for international capital again. But these gains are built on massive speculations like the speculations of the 1990s that brought an end to the Asian miracle economies. They weren't miracles but debt-laden economies built on sand, hype and corruption. Which makes global capital nervous and flighty an irony, really, since, by its very nature, it is its own flighty nature that adds to the speculative nature of money.

Take Thailand. For months before last December's financial market crisis, the government in Bangkok had been quietly nervous about the growing trend of speculative capital that has been hitting the Thai stock exchange. Not only that, managers of U.S. pensions and other institutional funds were turning more cautious. Twenty-five percent of fund managers said Thailand is headed for a recession in the next year a low number, maybe, but 60% said the Thai economy has weakened, and not helped by the bloodless military coup last September.

Competitive global interest rate policy has seen much of Asia maintain a historically low interest rate regime. But this is no longer sustainable, due either to growing inflationary pressures of currency competition. The housing boom has been as speculative in Bangkok today as it was in Kuala Lumpur in the mid 1990s. There's also a discernible downward trend in companies' earnings growth. For technical reasons U.S. pension funds have been buying bonds.

US firms have made such huge profits in Thailand that they don't need to borrow more. Borrowing less means the Bank of Thailand will keep interest rates low. But the baht had been surging against the US dollar, rising to a 9-year high in December when it touched 35.06 baht to the dollar. That can't have been good for local spending power and consumer confidence, and it can't have been good for export dependent economies. Even Malaysia's ringgit has soared 5.5% against the greenback.

Deeply regressive

The Thai government's new capital controls have seriously jeopardized stocks on the share market. Thai stocks plunged most heavily, the worst in 16 years, wiping out US$23 billion in market value after the central bank said international investors must pay a 10 percent penalty unless they keep funds in the country for a year.

Share trading stopped for a while on Dec 19 before Bangkok rolled out exemptions for share traders following a late night emergency meeting between the Bank of Thailand, the Stock Exchange of Thailand, the Securities and Exchange Commission and the Finance Ministry. Investment in equities is now exempt from the new rules, but short-term currency investment is still being targeted after a run-up in the baht this year of more than 10 per cent against the US dollar. The central bank is demanding that 30% of all new currency investments be held by Thai authorities for a year earning no interest.

What's worse is the uncertainty the interim military government has created in the minds of investors. Export-oriented industries like car manufacturers, which compete directly for international market share with the likes of Malaysia's Proton, which has been hemorrhaging for years largely through incompetent management, are exempted from Thailand's new rules. But the new rules, as they apply across other industries, smack of old-fashioned nationalistic protectionism. The military regime, in its manic confusion, has been espousing ideas such as reaping self-sufficiency for the nation after years of heady free-market pushed by ex-premier Thaksin Shinawatra, who's hiding in China.

The self-sufficiency idea, if it becomes policy, will be deeply regressive, and well out of left field, especially as China, Vietnam , Indonesia and the Philippines are opening up their economies to more competition. Even Malaysia, which over the years has been losing out to Thailand in foreign direct investment flows, could reap some benefit from the Thai government's policy obfuscation. Don't bank on Proton seeing a red cent just yet. Until a foreign savior arrives, the Malaysian government will bail out Proton with billions of taxpayers' money. The old is new again.

MANJIT BHATIA is a regular contributor.