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