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Still Looking for Answers in Region's Meltdown

By Satya Sivaraman, IPS
2 August 1999

BANGKOK, Aug 2 (IPS) - Two years after the Asian economic crisis shook the region and sparked off turmoil in global financial markets, the debate still rages on the exact reasons for the crisis and what steps should be taken to prevent a recurrence.

Economists, sociologists and political leaders gathered at one such soul-searching conference in Bangkok identified land reform, human resource development and control on global capital flows as key lessons from the crisis for the future.

"The challenge is to draw the right lessons from mistakes of the past, so the terrible pain of this crisis can be the starting point for needed change," said Anand Panyarachun, former Thai prime minister at the inaugural session of the conference last week.

Titled 'Back to Basics', the conference organised by the Thailand-based Nation Multimedia group, sought to take another look at the fundamental issues of land, labour and capital in the context of the Asian crisis.

However, Anand also warned that it is not a simple matter to determine exactly what change is needed and how it is to be accomplished.

"Defensiveness, self-interest, pet theories, disputed or incomplete data and manoeuvering for future economic advantage all add to the smoke of intellectual battle that can obscure the best way forward," he said.

As predicted by the former Thai prime minister, the two-day conference saw a majority of speakers talk about the need for a fundamental change in policies, but there were some who felt no radical changes were required.

"The crisis that beset the region over the past two years notwithstanding, East Asia remains the best model for development the world has probably ever seen. Going forward, its countries must build on the strengths of the past that led to the miracle, but at the same time address those weaknesses," said Joseph Stiglitz, Chief Economist at the World Bank.

Among the achievements of East Asian economies cited by Stiglitz were decades of high growth and dramatic reductions in poverty.

Not surprisingly among those agreeing with Stiglitz on this score were Thai Prime Minister Chuan Leekpai and his finance minister Tarrin Nimmanahaeminda, both of whom claimed that Thailand was already on the road to recovery without any major overhaul of policies.

"We do not need to go back to the basics but move forward with some adjustments," said Chuan, whose remarks were seemingly at loggerheads with the very purpose of the conference.

Observers there pointed out that for both multilateral funding agencies like the World Bank and governments in the region, all talk of 'fundamental change' sounds suspiciously like an attack on their past records.

The World Bank and the International Monetary Fund, along with the region's political leaders, have been criticised widely for blindly leading the region into the economic crisis which has had devastating social consequences.

The Thai official view on economic recovery was countered by former Thai finance minister and well-known economist Virabhongsa Ramangkura, who said that any recovery was likely to be long and painful because nobody had a clue to solving the countries massive build-up of foreign debt. .

The currency crisis he pointed out had become a crisis of the real sector, with nearly 50 percent of all industrial capacity in Thailand lying idle due to recession.

Among those advocating long-term changes at the conference was James Putzel, a sociologist from the London School of Economics who argued for state-sponsored land reform in South-east Asia similar to that undertaken in Japan and South Korea in the immediate post-Second World War period.

Pointing out that the overall health of most Asian economies will continue to be determined by their rural sectors, Putzel also pointed out that "development programmes that encourage and facilitate the self-organisation and education of people in the rural areas remain crucially important".

According to Kamal Malhotra of the Bangkok-based NGO Focus on Global South, a more immediate threat to the Asian rural sector that needed to be warded off was the liberalisation of agricultural trade forced upon Asian economies by western lobbies at the World Trade Organisation negotiations.

A premature opening-up, he said, would devastate small farmers in Asia and only benefit the highly subsidised farm sector in regions like Europe and North America.

Human resource development was a key area identified by experts for long-term improvement. Apart from raising overall rates of literacy in countries like Thailand, it was recognised that the future of economies lay in promoting greater information and technology skills among the workforce.

On the capital front, several prominent speakers advocated the use of some form of controls to prevent speculative movements of short-term funds from ravaging economies of developing countries.

Identifying the Asian crisis as stemming from overspending by the private sector and facilitated by bank misbehaviour, Clark Anderson of the US investment fund Goldman, Sachs and Co warned Thailand against "blind application of free-market thinking".

"A final lesson from the mess of the last couple of years is that the entire premise of many financial-market players is fundamentally flawed," he said pointing out that there was no such thing as a 'global capitalist system'.

What existed, he says, was only a series of national capitalist systems, each with their own unique character.

Among the suggestions made to counter short-term capital flows was the setting up of an Asian Monetary Fund to bail out regional economies well before they entered crisis stage.

A similar proposal made by the Japanese government two years ago was shot down by the US government and the IMF, which critics say feared loss of influence in the region.

On the long-term political front, Takashi Shiraishi of the Centre for Southeast Asian Studies in Kyoto University, says the ongoing crisis marked a historical turning point.

This is because the region was now faced with the choice of following divergent interests of Japanese and US governments in the region, Shiraishi says.

"While Japan drove Asian economic dynamism with its direct investment, government aid and market-opening measures, the US rode it with its short-term investment," he said.

Now, Shiraishi points out, each country in the region had to negotiate with these two conflicting interests which play a key role in shaping the regional structure, and to chart its own course.