Lessons from currency crisis<\/p>\n
By Jusuf Wanandi<\/p>\n
JAKARTA (JP): As could be expected the currency crisis in
\nSoutheast Asia was the main topic of discussion at the World
\nEconomic Forum 1997 East Asian Summit in Hong Kong on Oct. 13-15,
\n1997.<\/p>\n
The problem is in everybody's mind, and policies to overcome
\nthe problem are yet to emerge more clearly, while the financial
\nmarket will assess Malaysia's state budget and the deal between
\nIndonesia's government and the IMF which is being explored in
\nJakarta.<\/p>\n
Naturally, the ASEAN leaders present gave their positive spin
\nto the developments, while others were less sanguine and were
\nmore critical. They asked a lot of questions about the future
\ndevelopment of the crisis, and how and when this is going to end.<\/p>\n
Most participants present at the summit understand that the
\ncrisis is a consequence of being part of the world economy,
\nespecially the globalized financial field.<\/p>\n
They continue to believe that the viable way for development
\nand modernization is to become part of the world economy, as the
\nalternative means being left behind and eventually marginalised
\nas a nation. A critical part of this process is to become part of
\nthe global financial market, which could supplement for the need
\nfor funding of development projects in a very important way. But
\nof course, there are consequences of being part of the
\ninternational financial market.<\/p>\n
The most important one is that one has to play by the rules.
\nIn the financial market, the rules are to adopt sound macro-
\neconomic policies and to implement them in a transparent fashion.<\/p>\n
If the rules are followed, then the vagaries of the market
\nwill not hurt the economy, and one can get a substantial amount
\nof funding for economic development. However, if they are not
\nfollowed the market will eventually find out and attack the
\ncurrency and the financial market. At the end they will show
\ntheir lack of confidence by leaving. Here, the herd mentality
\namong the financial investors can aggravate the crisis.<\/p>\n
In the case of Southeast Asia, Thailand has already been
\nwatched closely during the last two years in regard to its weak
\nfundamentals, and last July the currency traders decided to
\nstrike because they fail to see serious attempts made by the
\ngovernment to improve the situation. Since then the entire region
\nhas been scrutinized. They found out the lacuna in the
\nfundamentals of the other ASEAN economies which led to the attack
\non the currencies.<\/p>\n
This is of course a painful experience for the ASEAN
\neconomies and the impact could be felt for many years as has been
\nthe case of Mexico. It could even take longer if the necessary
\npolicies to overcome the crisis are not being taken.<\/p>\n
Indeed it could be argued that to regulate trading in
\ncurrencies, which today is so vast and much bigger than trading
\nin goods and commodities, will be only limiting the funds and
\nfinances that are so much needed by the developing world itself.
\nThe only protection for the developing nations is to have their
\nfundamental macro economic policies right and to make them
\ntransparent.<\/p>\n
It is also obvious that the crisis is not merely a wake-up
\ncall for Southeast Asia, and that afterwards everything will be
\nthe same again. It should be seen as a correction and ASEAN
\nreally has to think through about the problems that have created
\nthe crisis in the first place, in order to prevent the crisis
\nfrom coming back again.<\/p>\n
They will have to lay down a much more balanced program for
\ngrowth and development, where high rates of growth are not the
\nimportant objective, but how inclusive and sustainable the growth
\nis for the people.<\/p>\n
lessons from Mexico is clear. Economic fundamentals are
\nimportant, but what also has to be established by the ASEAN
\ncountries is good governance, because without this the economic
\nfundamentals cannot be strengthened and the government and its
\npolicies will not be credible.<\/p>\n
It has to be admitted that the rapid growth of the economy,
\nespecially in the last decade, has brought about new inequalities
\ninto the system in Southeast Asia. While in absolute terms the
\npercentage of people below the poverty line has decreased
\ndramatically to below 20 percent, but at the same time the rapid
\ngrowth of the last decade has created new discrepancies, because
\nsmall enterprises and traditional traders and businesses have
\nbeen left behind in the globalization.<\/p>\n
This means that the small people and small businesses are
\nlosing out. Less educated and qualified labor are being laid off,
\nand without special attention and new training they are unable to
\nget new jobs. This calls for targeted government policies to help
\nand assist those that are being left out.<\/p>\n
Since there is a time lag between efforts and results in
\nachieving greater equality in the future, some flexibility in the
\npolitical system is important to alleviate these new income
\ndiscrepancies. Therefore, political development is an important
\npart for securing sustainable economic growth.<\/p>\n
This is a time for reflections and debate to strengthen the
\nbasis for the future development of the ASEAN countries. Rapid
\ngrowth creates problems such as environmental degradation,
\nurbanization pressures as well as changes in cultural values.<\/p>\n
The challenges faced by the ASEAN countries are to maintain
\nsustainable growth and enhance the quality of life. Since this is
\na time for new stock-taking, it should be used to plan for a
\nbetter future.<\/p>\n
Of course, there might be some set back in the next few years,
\nthat is growth might be reduced by 2 percent GDP, inflation
\npressures might be greater, unemployment has to be monitored
\nclosely. And above all, a series of new policies have to be
\ntaken.<\/p>\n
The ASEAN countries have faced difficulties before and have
\nbeen able to overcome them. Indonesia has had the debacle of
\nPertamina, the national oil company, in 1974 with an external
\ndebt of US$ 10 billion, which was overcome by biting the bullet
\nand taking the necessary, although difficult, measures.<\/p>\n
Indonesia and other ASEAN countries overcome the deep
\nrecession of the mid 1980s and the downfall of oil prices from
\n$38 to $8 a barrel by liberalizing their economies and opening
\nthem up to international competition. These new policies provided
\nthe basis for the rapid economic growth in the last decade.<\/p>\n
The challenge for the ASEAN countries today is more complex
\nand encompasses all fields of national activities. It will not be
\neasy to overcome it but with the experiences of dealing with the
\nearlier crisis, it could be safely assumed that necessary
\npolicies, however difficult, will be taken, including by
\nIndonesia.<\/p>\n
A lot of efforts and sacrifices have gone into the process of
\ndevelopment and modernization in East Asia in the last decades.
\nChanges in policies had been made in response to disastrous
\ndevelopments, such as the turmoil in Indonesia in 1965, the Great
\nLeap Forward and the Cultural Revolution in China, the Vietnam
\nWar in Indo China as well as the insurgencies in Malaysia and the
\nPhilippines.<\/p>\n
With the recognition that we are now part of a globalised
\neconomy we will make the necessary corrections and changes. In
\nthe last instance, the drive to grow and to modernize remains so
\ngreat due to the deprivatisation during the last centuries, and
\nEast Asians will continue to make the sacrifices in order to
\ncatch up with the world.<\/p>\n
The writer is Chairman of Supervisory Board of the Center for
\nStrategic and International Studies, Jakarta.<\/p>",
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