Perspective on Asian crisis (2)

This is the second of two articles based on a paper presented by Deputy Prime Minister and Minister for Foreign Affairs of the Netherlands Hans van Mierlo before the Indonesian-Netherlands Association and the Forum Indonesia-Netherlands on Feb. 11, 1998 in Jakarta.

JAKARTA: Apart from the effects of the crisis on the global economies, there are other consequences in Asia itself which are, in my view, far more worrying.

I am speaking of the social consequences of the crisis. In South Korea it is feared that approximately one million people will become unemployed this year. In Thailand and other Asian countries we see the same scenario. Here in Indonesia, even millions and millions of people have lost their jobs. Those who have a job are seeing their wages fall; inflation is reducing the purchasing power of incomes. In Indonesia, but perhaps also elsewhere, people started to hoard food as shortages threatened.

Due to budgetary restraints, government expenditure on medical care and education fell, thereby making it increasingly difficult for people to benefit from such provision. I understand that in Thailand, the emergence of child labor could be a possible consequence. Millions of migrant workers are at risk of losing their jobs. As might be expected, there have already been calls to expel these foreigners, even though they are often vital to the economies of their host countries. The social fall-put of the crisis is enormous and might jeopardize not only the internal stability of the countries involved, but perhaps also regional stability.

In some countries it is the absence, in others the inadequacy of the social safety-net system that makes the social consequences of the crisis so grim. The governments who have to cope with these social repercussions are facing a formidable political challenge.

For me, the crisis underlines the absolute necessity of adequate safety-net systems. We in the Netherlands have built up considerable know-how in this field, not only because of government regulations and legislation, but also because we have private financial institutions which are active in this field. We would be most willing to respond to requests for further advice through both bilateral and multilateral channels where necessary.

You may have noticed that so far I have not mentioned the role of the European Union. I admit that to an outsider the European Union has not been as visible in the assistance to tackle this crisis, as it could have been. As the Union has no institutional framework to furnish financial support to correct the imbalances of payment in Asia, the European Member States have provided their financial assistance through different channels, namely the IMF, the G-7 and G-10. Nevertheless, the countries of the European Union are supporting Indonesia in trying to solve the crisis with quite a substantial stake in the IMF-facility.

Direct talks between the European Union and the Asian countries could further intensify the exchange of thoughts on how Europe can assists the Asian government to overcome the crisis. Therefore, I strongly feel that we should make the financial and economic melt-down in this region the number one topic of the forthcoming ASEM-meeting, early April, in London.

I think it is obvious that a small country like the Netherlands will not be capable of financing the needs such as social safety-nets alone, nor can we provide financial support to all those countries who are suffering from the crisis. But we can make an effort.

First, in general, a number of steps are required to overcome the current crisis.

* In the first place, a national effort is needed. As stated before, we in the Netherlands have confidence in the appropriateness of the IMF measures. We assume that the countries concerned, taking into account the sound economic base they have, will implement the IMF recommendations they have agreed upon. These include pursuing macroeconomic and fiscal policies, restructuring banking systems, introducing transparency and improving competitiveness.

* Secondly, regional cooperation is required. We think that ASEAN can play a pivotal role in this respect. The reaffirmation at the last summit of the determination to maintain an open trade and investment environment in ASEAN and to remove barriers in this respect is a good example. Coordination of a common approach to the present financial crisis would be another. As far as cooperation with the EU is concerned, I already mentioned this, the crisis should be put high on the agenda of the London ASEM- meeting in April.

* In the third place, international cooperation is important, not only to overcome the crisis and its social effects, but also to reduce the risk of these kinds of crisis. In the framework of the IMF the Netherlands will continue to stress the importance of a study of the scope for more equitable burden-sharing among the international financial institutions, bilateral governments and commercial creditors in financial crises. Furthermore, we will work towards enhanced surveillance by the IMF, emphasizing that the IMF should pay more attention to the financial sectors and to debt management, and that IMF surveillance reports should be made pubic.

* Furthermore, the international (commercial) financial sector should bear their shared responsibility. In talks I had two days ago in Thailand with representatives of the leading Dutch banks, I noted recognition on this point. The moratorium and the willingness of banks to roll-over short term loans, are significant signs of these cooperation. Although commercial banks hardly will become philanthropical institutions, they acknowledge the necessity of a positive and realistic approach in this crisis.

So, what is the concrete Dutch involvement in tackling the financial crisis?

* As you know, the total financial facility of IMF, Worldbank and Asian Development Bank is around US$23 billion. Of the IMF- share ($10 billion), the Netherlands government contributes more than $300 million for Indonesia.

* Furthermore, the Netherlands in examining the possibility of setting up, in a multilateral framework, a special Trade Guarantee facility that could enable Indonesian companies to continue production of goods and import first necessities.

* Finally the Netherlands government is, where necessary and appropriate, prepared to advise in the field of social safety- nets.

The Dutch commercial banks also play a relevant role:

* They participate in the 90-days freezing, the moratorium.

* They have accepted Roll-Over of private loans.

* Especially ABN/AMRO is very active in Indonesia, and for example member of the Steering Committee of Lender Banks, which is working on a solution for restructuring the private debts.

In concluding I am positive that all these efforts, both from the Indonesian side, as well as from the international community, will help overcome the crisis.

It may take some time, and I am very much aware that the measures will hurt, but I am confident that they will eventually be successful.

Window: Therefore, I strongly feel that we should make the financial and economic melt-down in this region the number one topic of the forthcoming ASEM-meeting, early April, in London.