ad info

 web features
 magazine archive
 customer service
  east asia
  southeast asia
  south asia
  central asia

Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Don't Fall For It

The American bailout and other myths of the Asian crisis

QUICK, WHICH COUNTRY IS the biggest contributor to the Asian crisis bailouts? If you are in Washington, you will probably reply without a pause: "The United States, of course." In fact, the biggest tab for the Thai, Indonesian and Korean rescues is being paid by the nation that everyone has lately been dumping on for not doing enough. Japan has pledged fully $19 billion to the financial lifelines put together by the International Monetary Fund. That is more than twice the $8 billion from the U.S., which was not listening when Thailand called for help in July. Even counting Washington's portion of the $35 billion made available by the IMF itself (being the largest shareholder of the Fund, with 18%), America's pledge to devaluation-hit Asia amounts to less than $15 billion (Japan's: more than $20 billion).

Dispelling such misconceptions about the crisis would do a lot to clear up much of the muddled deliberation and decision-making on it. For instance, the mis-tally of Washington's contributions has fueled opposition on Capitol Hill to an urgent request for $3.5 billion for the Fund. The money is the U.S. share of a $25-billion special line of credit needed by the agency to deal with future crises. While there may be other reasons for withholding the money, the argument that America is bailing out Asia, should not be one of them.

Myth No. 2 was most famously put forth by Malaysian Prime Minister Mahathir Mohamad at the World Bank-IMF meetings in Hong Kong last year: Powerful Western interests instigated the crisis. Anyone looking for foreign devils should ponder a few questions. Why should the West engineer a collapse in currencies which would make Asian exports cheaper, shrivel Asian imports from the West, and jeopardize the tens of billions of dollars lent by Western banks to the region? Wasn't it mainly Asians themselves dumping their currencies, since they held most of the baht, rupiah, won, peso and ringgit in play? Most important, were there not in fact real domestic problems eroding the value of Asia's money? Blaming the West only serves to distract the region from addressing them.

That the conspiracy myth gained credence, however, is due to more than just the tendency of people to blame others. For starters, the West's response to the crisis often seemed unsympathetic at best and opportunistic at worst. Early in the contagion, when Tokyo and ASEAN mooted the idea of a stabilization fund (which, incidentally, might have reduced the need for U.S. rescue loans), Washington opposed it as a ploy to get around IMF strictures. In the South Korean bailout talks in December, one eleventh-hour snag was an American demand, coursed through the Fund, that Seoul open its capital markets further, something that Western investment funds and financial institutions have wanted for many years.

Even The Economist, a respected British journal, found reason to urge: "Western politicians and commentators, prone to gloat over the bankruptcy of 'Asian values' and to harp on the need for reform, may be well-advised to leaven their lectures with a touch of sympathy." It is not hard to get the impression that the West has taken advantage of the crisis to attack aspects of Asian business and politics that it has long objected to. "Opportunities have been seized to regain the whip hand over Asian economies and to impose the Anglo-Saxon path to prosperity," says one columnist at a leading London newspaper. "Out must go the model so recently hailed as responsible for the 'East Asian Miracle'."

Which leads us to Myth No. 3: The crisis shows that the Asian development model has failed. One senior editor of a U.S.-based global newsmagazine argues: "The Japan Inc. model, adopted in varying degrees across East Asia, relies on the body politic's accepting the dictates of a meritocracy chosen from the best and brightest." The technocrats "cajoled [people] into saving upwards of a fifth of their incomes" and directed loans to "industries that offered the most potential for growth." He concluded: "The top-down nature of the Asian model is the cause of the crisis. It bred complacency, cronyism and corruption."

The World Bank, for its part, has rightly praised the high savings, mass education and economic management achieved under technocracy (which, by the way, does not have a monopoly on cronyism and corruption). More to the point, those who attribute the crisis to the Asian model miss some basic facts. First, what collapsed the region's currencies was not a rash of graft scandals, but the abrupt reversal of foreign capital flows. They were triggered by concerns over Thailand's overleveraged finance and property companies, and then by fears -- partly self-fulfilling -- of similar debacles across Asia. After years of pouring cash into the tiger economies, foreign banks and investment funds pulled out en masse -- a sure-fire formula for currency free-fall anywhere.

Second, it was not government fiat but private-sector lending and investment -- both Asian and foreign -- that created the mountain of short-term external debt and dud property and industrial assets which undermined Asian currencies. And it was financial and economic liberalization -- a deviation from the "top-down" model -- that allowed dozens of new lenders to spring up, borrow heavily abroad and finance gluts in real estate and industry. Cronies no doubt got easy money from the state, and regulators deserve some blame for allowing overborrowing and misinvestment. But the wretched excess was primarily the work of private lenders and borrowers unleashed by policies that tempered technocracy in favor of laissez-faire. Now, of course, Asia needs strong governments, preferably elected, to implement harsh economic adjustments in the face of intense public opposition.

Myth No. 4 asserts: The IMF program is the only solution to Asia's crisis. Harvard economist Jeffrey Sachs has criticized the Fund's regimen as ill-suited to the Asian crisis, where governments and countries were in relatively sound macroeconomic balance and much of the foreign-debt problem involved the private sector. He argues that cutting government spending and raising interest rates, as the IMF demanded, collapsed debt-ridden enterprises and unnecessarily plunged economies into recession.

Another leading economist, who will not publicly take issue with the Fund, argued that the first remedy should have been to negotiate a more manageable debt-repayment schedule. Foreign banks balk at such talks, and their governments usually pressure debtor nations to pay on time. But when the debtor's fundamentals are mostly sound and the urgent problem is a reversal of capital flows, surely it makes sense to give priority to debt relief rather than drastic measures like recession-inducing austerity and mega-bailouts.

If early in the crisis, affected governments and foreign banks had announced their determination to work out a realistic debt repayment plan, Asian currencies might not have fallen so much, fewer debtor banks and companies would have gone under, and foreign creditors would have a better chance of getting more of their money back. An IMF rescue would probably still have been needed, but it would have cost less, and there would have been not as much suffering, protests and market panic to complicate the tough reform agenda.

Having been continually rescued from their lending fiascos, foreign banks will almost surely have more of them. Next time, call in debt negotiators early, not just The IMForcer. The Fund, of course, likes to think its prescriptions have worked. A measure of confidence has no doubt returned to countries which have demonstrated commitment to IMF programs. "The worst part is over," said first deputy managing director Stanley Fischer in Kuala Lumpur early this month, referring to the financial crunch. As they ponder the prospect of more bankruptcies, layoffs, inflation, unrest and foreign takeovers, Asians can decide whether the Fund's view is a fair assessment -- or just Myth No. 5.

This edition's table of contents | Asiaweek home



U.S. secretary of state says China should be 'tolerant'

Philippine government denies Estrada's claim to presidency

Faith, madness, magic mix at sacred Hindu festival

Land mine explosion kills 11 Sri Lankan soldiers

Japan claims StarLink found in U.S. corn sample

Thai party announces first coalition partner


COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state


COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness

Launch CNN's Desktop Ticker and get the latest news, delivered right on your desktop!

Today on CNN

Back to the top   © 2000 Asiaweek. All Rights Reserved.
Terms under which this service is provided to you.
Read our privacy guidelines.