At 2:37 am +0800 29/9/97 [date is due to mis-setting of your
computer clock], Rene Barendse wrote:
> The irony of this is that all those 50 pundits did not predict the
> present economic crisis. Thus books from 1995 and 1996 of which I have
> review copies laying in front of me are all presenting `irrefutable'
> evidence that Southeast Asian economic growth is sure to last for several
> more decades. What is even more ironic is that the same pundits who were
> praising authoritarian regimes as being more friendly to investment a few
> months ago are now pleading that Indonesia or Singapore should adopt
> democracy - and what I find irksome is that the same people who five months
> ago had a very good explanation of why the `Asian model' worked now have a
> good explanation of why it couldn't have worked. So much for the
> `scientific' claims of economics.
Agreed that economics should cast off its pretensions and return
to the bumbling fold of the humanities. Don't get me wrong, I'm
no economist.
But, to be fair, while I don't know about your 50 pundits, there
were enough signs and even articles (in, e.g. Business Week) of
an impending down-turn. What no one did predict was the form and
severity of the crisis. I think the expectation was of a normal
business cycle downturn.
As for the scuttling around now - well, would it be too much to
suggest that for many, what was perceived as 'Asian hubris'
stuck in the craw and the crisis was just too tempting an
opportunity not to stick it to 'them'? The more sober seem to
take a 'convergence' approach - the Asian model did work, but it
came to a point where it needed to adopt a 'western model', etc.
Some others happily fly in the face of the evidence of the
transformation of E Asia over the past 30 years.
> Anyhow, those personal grudges aside, I have four questions:
>
> 3.)Regarding Khay Jin's excellent posting I don't see why
> liberalisation of restraints on global banking, anti-trust regulation etc.
> should lead to shifts within the core. Because banking very much depends on
> information, something which is build up through a wide network of contacts
> very gradually, labour costs are hardly a consideration and banking is not
> necessarily dependent on the location of commodity-trade, I think banking is
> one activity which tends to stick pretty much to a single location for long
> periods - essentially because all the main banks are already there.
> Amsterdam was the world-banking center in the seventeenth/eighteenth century
> and Dutch banks are still amongst the biggest European banks and its
> successor, London, is still the biggest center of capital trade in the
> world. In fact, the collapse of several Japanese banks over the last months
> would give London even a bigger edge over Tokyo - theoretically its main
> competitor - and the apparently structural problems with the German economy
> would give an edge over Frankfurt too - one reason why Britain now wants to
> join the EMU of course.
I agree about the character of finance and financial centres.
Perhaps in being somewhat circumspect I gave a wrong impression.
I think that too rapid financial liberalisation without the
institutional framework to manage it was one of the sources of
the crisis (as it was one of the sources of the boom). Further
liberalisation in the present circumstances would be more of a
problem as it would likely ensure that SE Asian financial
entities would never be able to compete. There's a desperate
scramble to merge mosquito enterprises (by world standards), but
under unfavourable conditions. Perhaps only Singapore's merger
of financial enterprises will result in entities that would be
world competitive. Even then, there is that historical
stubbornness to contend with when it comes to financial centres,
and not just financial centres.
If we put this together, then there would be little or no state
influence over finance. Many might say that's wonderful -
greater transparency, accountability, no cronyism, etc. I'm not
so sure that this wouldn't be throwing out the baby with the
bathwater in the context of developing economies. And I have no
greater faith that big financial institutions are anymore
transparent or accountable in the sense that we'd all like to
see, nor that they are free of their own version of cronyism,
etc.
> 4.)My main problem - is the Asian economic meltdown a world-wide
> crisis as most contributors are arguing or at least a portent of it ? If so
> - one would have expected a fall of the index-rates of stock-exchanges
> throughout the world. But in Amsterdam, for example, the rates slightly
> dropped and then went up again, likewise the Asian economic meltdown had no
> influence whatsoever on the Dutch economic growth-figures (and the
> Netherlands is actually a country which has relatively big interest in
> Indonesia). Nor do I see a world-wide drop or rise of commodity-prices, a
> deep rise or fall of the dollar etc. This seems to me rather one of those
> typical cases in which one peripherial region for some time shows rapid
> export-led growth and then begins to stagnate again. Latin America is the
> typical case throughout the twentieth century but who still talks about the
> Persian Gulf as a new rich boom region too ?
I hope you are wrong on your last two sentences - speaking from
personal interest. With some exaggeration, I think it's worse to
have grown to this level and then stagnate than not to have
grown at all; you know what they used to say about being
consigned to limbo. For Indonesia, one suspects it would be
disastrous.
But I do think there are reasons to be faintly optimistic, at
least for some of the countries and in the medium-term. Asia -
there's been some discussion in H-ASIA on the meaningfulness of
the term - is effectively bounded by India on the one hand and
China on the other. I think we can't ignore the sheer weight of
size and population (you know, the cynical bit of if every
Chinese and Indian were to consume only one tin of condensed
milk every five years, that would still mean a market of some
800 million tins a year). Then, both countries are 'opening up'
in ways that may well put paid to the ambitions of a Malaysia,
make life very difficult for those still in generally low- and
middle-tech assembly operations, but could just offer the niches
to allow the smaller countries to grow, servicing those
economies and benefitting from the economies of scale that they
provide. This is not thought through - and there are all the
'if's' and 'but's' to consider.
As for whether the Asian meltdown is to become a worldwide
crisis - that does depend on what various actors do or don't do,
perhaps not to much in terms of the Asian countries as in terms
of covering creditors. But yes, I tend to agree that the moment
appears to have passed.
However, I don't think European growth figures for 1997 can be
taken as indicative; 1998 would be a better indication and the
OECD (and World Bank/IMF) has had to revise their figures at the
end of last year. European banks are heavily exposed, partly
because they came late into the game; major sectors are also
affected, ranging from 'luxury goods' (the cosmetics, fashion
and branded-goods industry; in some cases, Asia accounted for
almost 1/2 of their market) to engineering (firms such as ABB,
etc.). Coupled with the continuing problems of W Europe trying
to juggle the post-war social contract with the 'discipline' of
the current world order and the emerging European one, and those
of E Europe 'marketizing' of their economies, Asia might well
have a significant impact yet. In some regions, as in Wales, I
think there has already been an impact as S Korean investments
are deferred or abandoned, etc.
The US might be a different matter, despite concerns about the
hi-tech sector. I may be completely misinformed, but this does
have something to do with the US$ being effectively a reserve
currency, thus why so much of the noise about the US trade
deficit was somewhat misplaced (if politically relevant). Thus,
the Asian meltdown extends a lease of life to the so-called 'new
economy'.
The US$ had of course appreciated significantly in the 2-3 years
preceding the meltdown and was also one of the sources of the
meltdown as local currencies were informally pegged to the US$.
Now, oil prices are falling. As for agricultural commodities,
there's El Nino (the poor infant has become everyone's favourite
fall-guy); I think edible oils are already seeing significant
price rises as Indonesia extends its ban on palm oil exports and
El Nino plays havoc with weather around the world.
As for a possible crisis of over-production, haven't thought
that through. Clearly, that's true of some industries -- but in
general?
Having said all this, there is another level of the crisis which
is not so much talked about -- and this may be the 'real'
crisis: what happens at the level of the people especially in
countries such as Thailand and Indonesia. Even if we've seen the
end of the beginning, i.e. currencies stabilising and stock
exchanges bottoming out, the ramifications of the past 7 months
are just starting to work their way through to 'civil society'.
And while some commentators are suggesting that the meltdown
spells the end of the authoritarian style, it is one of the
ironies that it took the meltdown and Kim Dae Jung to cut the S
Korean unions down to size. Nor should one be surprised that,
after some initial negative market reaction, a declaration of
martial law in Indonesia would not be welcomed.
Further, the crisis will also likely translate into increased
movements of people as individuals seek to make ends meet by
becoming illegal immigrants all over the place, including to
Europe, Australia and the US, not to mention within the region
itself.
Khoo Khay Jin