Where does the economic catastrophe really belong?

Where does the economic catastrophe really belong?

SINGAPORE: Reviewing the Southeast Asian crisis a year or so
later, there is little doubt that it has been devastating: gross
domestic product (GDP) in Indonesia this year is running at a
staggering 15-20 percent down on last year's levels. Even in
South Korea and Thailand, which are supposed to be the success
stories to emerge from the Asian crisis, the reductions in GDP
are respectively estimated at 6 and 8 percent. When you consider
that in the previous decade growth rates of 7 to 10 percent were
the norm, the extent of the turn around is stunning.

It matters not that Harvard economists such as Jeffrey Sachs
tell their Asian audience here at the Singapore meeting of the
World Economic Forum on Asia that the worst is over. Nor that
Hunert Neiss, the International Monetary Fund Director for Asia
and the Pacific, forecasts a resumption of Southeast Asian growth
in the second half of 1999.

The social consequences of the crisis have included a steep
increase in poverty and unemployment, the removal of tens of
thousands of children from school because their families can no
longer afford for them to stay on, and the closure of hospitals
and other vital services.

The riots in Indonesia have been well-publicized, and
Malaysia's decision to introduce controls on capital movements,
while a shock to free marketeers, has produced a guarded reaction
in the most surprisingly orthodox quarters. But perhaps the most
telling symbol of Indonesia's problems is that peasant farmers
have reclaimed a golf course formerly belonging to the deposed
President Soeharto and converted it back into fields for growing
vegetables.

But it is an ill wind that blows nobody any good. One of the
main themes of the WEF meeting is an odd sense of relief that the
crisis has spread elsewhere. The spotlight is now on he entire
world economy, its capacity to avoid a serious downturn, and the
strength of the financial system.

True, the troubles of the world economy actually add to
Southeast Asia's woes, because they limit the scope for export
revival. But against a background of the market gyrations and the
troubles of the 'hedge fund of hedge funds' (Long Term Capital
Management) the Southeast Asian financial establishment is
beginning to wonder whether the crisis was entirely its fault.

One temptation is to lay the blame elsewhere, the answer is
that it was both. It was an Asian crisis, but it was -- and is --
being severely exacerbated by the vagaries of the international
financial system, and the slowdown in growth in the rest of the
world economy.

Southeast Asia had been heavily reliant on export-led growth
in general, and the electronics sector in particular.
Overcapacity in this area was bound to produce a slowdown
eventually, irrespective of the financial crash.

But there was economic Forum, that 'financial contagion' and
the excesses of short-term capital flows severely exaggerated the
underlying Asian crisis. As Ian Macfarlane, governor of the
reserve Bank of Australia noted: 'This is not exclusively an
Asian crisis. It is now an emerging markets crisis, and a world
crisis,' he added 'Fear overrules reason,' when lenders rush for
cover.

Southeast Asia has not been able to export its way out of the
crisis. Japan, which dominates the Asian region, is depressed.
Higher exports to the U.S. and Europe have been offset by lower
intra-regional trade. The general improvements in Southeast
Asia's balance of payments has come from lower imports,
reflecting the depressed state of their economies.

Which brings us to another theme that has emerged from this
week's Singapore meeting. Does the 'Asian value' of high savings
need to be re-examined? If the U.S. is slowing down, Europe can
only recovering gently, and Japan depressed, isn't it time for
Southeast Asia to rely less on exports and more on boosting its
own domestic demand?

-- Observer News Service