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Matthew Townsend
Dec 1, 1998, 3:00:00 AM12/1/98
to
>Mark Atkinson
>
>TWO competing causes have been advanced for the Asian economic crisis --
hasty financial liberalisation or cronyism. Not surprisingly, the West has
chosen to emphasise the latter. By blaming the victims for their own
misfortune, it helps Western policymakers to sleep more easily.
>Yet a special edition of the Cambridge Journal of Economics, published last
week, suggests that the West, by imposing its doctrines of deregulation and
economic liberalisation on the Asian countries, has much to answer for.
Although corruption and cosy relationships between banks, businessmen and
politicians may have been endemic in Asia, it was not the primary cause of
the crisis, the journal argues.
>Rather it was caused by the programmes of financial liberalisation that
were undertaken by the Asian countries with Western backing, in the years
preceding their downfalls; programmes that allowed hot money to flow in and
out of the crisis countries to ultimately disastrous effect.
>Moreover, in some cases financial liberalisation actually enhanced the
opportunities for cronyism by removing some of the safeguards that helped
keep it in check.
>Take South Korea. Starting in 1993, the Korean government under Kim Young
Sam implemented radical financial liberalisation, which led to a rapid
build-up of foreign debt. Much of this debt -- more than 58 per cent -- was
short-term, making the country vulnerable to sudden swings in capital
flows.Ha-Joon Chang, of Cambridge, Hong-Jae Park, of London university, and
Chul Gyue Yoo, of Oxford, argue that the inflow of foreign debt fuelled an
investment boom, which led to excess capacity in key industries. The latter
was also made possible by the weakening of centralised investment
co-ordination. In turn, the weakening of industrial policy and the abolition
of five-year planning created opportunities for cronyism in key
industries.Indonesia suffered the same fate, according to Jonathan Pincus of
the London university, and Rizal Ramli, Indonesia's leading independent
economist. In a joint article, Indonesia: From Showcase to Basket Case, they
argue that the immediate cause of the cr!
>isis was the spread of contagion from Thailand.
>However, they say that the intensity of the downturn can only be explained
in terms of the government's progressive loss of control over the financial
system as a result of the liberalisation drive.
>Indonesian economic ministers installed the developing world's most liberal
banking system in the 1980s. It helped fuel the country's rapid economic
growth in the run-up to the crisis, but also undermined efforts to stabilise
the situation.
>The authors are also critical of the International Monetary Fund for
pressing the Indonesian authorities to maintain high interest rates and an
open capital account despite evidence that these policies were not working.
>The softer approach adopted by the IMF and Group of Seven leading
industrial nations suggests that the lessons of the Asian crisis have begun
to be learnt. The authorities have given their blessing to the loosening of
fiscal straitjackets. Since Russia's August devaluation, policy makers have
also been talking of the need for orderly capital account liberalisation and
stronger regulation of international capital markets.
>But words have not been followed up with action. One can only hope that
discussions about reform of the global financial system are continuing
behind the scenes. Unless they are, history threatens to repeat itself.
>
>Cambridge Journal of Economics, Volume 22, Number 6, November 1998.
Published on behalf of the Cambridge Political Economy Society by Oxford
University Press
>The Guardian Weekly Volume 159 Issue 23 for week ending December 6, 1998,
Page 16
>
>
>
>
>
>
>
>
>TWO competing causes have been advanced for the Asian economic crisis --
hasty financial liberalisation or cronyism. Not surprisingly, the West has
chosen to emphasise the latter. By blaming the victims for their own
misfortune, it helps Western policymakers to sleep more easily.
>Yet a special edition of the Cambridge Journal of Economics, published last
week, suggests that the West, by imposing its doctrines of deregulation and
economic liberalisation on the Asian countries, has much to answer for.
Although corruption and cosy relationships between banks, businessmen and
politicians may have been endemic in Asia, it was not the primary cause of
the crisis, the journal argues.
>Rather it was caused by the programmes of financial liberalisation that
were undertaken by the Asian countries with Western backing, in the years
preceding their downfalls; programmes that allowed hot money to flow in and
out of the crisis countries to ultimately disastrous effect.
>Moreover, in some cases financial liberalisation actually enhanced the
opportunities for cronyism by removing some of the safeguards that helped
keep it in check.
>Take South Korea. Starting in 1993, the Korean government under Kim Young
Sam implemented radical financial liberalisation, which led to a rapid
build-up of foreign debt. Much of this debt -- more than 58 per cent -- was
short-term, making the country vulnerable to sudden swings in capital
flows.Ha-Joon Chang, of Cambridge, Hong-Jae Park, of London university, and
Chul Gyue Yoo, of Oxford, argue that the inflow of foreign debt fuelled an
investment boom, which led to excess capacity in key industries. The latter
was also made possible by the weakening of centralised investment
co-ordination. In turn, the weakening of industrial policy and the abolition
of five-year planning created opportunities for cronyism in key
industries.Indonesia suffered the same fate, according to Jonathan Pincus of
the London university, and Rizal Ramli, Indonesia's leading independent
economist. In a joint article, Indonesia: From Showcase to Basket Case, they
argue that the immediate cause of the cr!
>isis was the spread of contagion from Thailand.
>However, they say that the intensity of the downturn can only be explained
in terms of the government's progressive loss of control over the financial
system as a result of the liberalisation drive.
>Indonesian economic ministers installed the developing world's most liberal
banking system in the 1980s. It helped fuel the country's rapid economic
growth in the run-up to the crisis, but also undermined efforts to stabilise
the situation.
>The authors are also critical of the International Monetary Fund for
pressing the Indonesian authorities to maintain high interest rates and an
open capital account despite evidence that these policies were not working.
>The softer approach adopted by the IMF and Group of Seven leading
industrial nations suggests that the lessons of the Asian crisis have begun
to be learnt. The authorities have given their blessing to the loosening of
fiscal straitjackets. Since Russia's August devaluation, policy makers have
also been talking of the need for orderly capital account liberalisation and
stronger regulation of international capital markets.
>But words have not been followed up with action. One can only hope that
discussions about reform of the global financial system are continuing
behind the scenes. Unless they are, history threatens to repeat itself.
>
>Cambridge Journal of Economics, Volume 22, Number 6, November 1998.
Published on behalf of the Cambridge Political Economy Society by Oxford
University Press
>The Guardian Weekly Volume 159 Issue 23 for week ending December 6, 1998,
Page 16
>
>
>
>
>
>
>
Matthew Townsend
Barrister & Accredited Mediator
Lecturer in Environmental Law, Victoria University of Technology
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