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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


Hubert Neiss

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On the currency side, are we in for more volatility among the G3 currencies?
Nobody really knows what will happen to currency relationships. There is no way of reliably forecasting the way currencies go and therefore, one cannot really say anything. If the yen appreciates further and precipitately, that will have an adverse impact on Japan and repercussions on the region. But again, this is a risk, not a forecast.

How do you gauge the stability of Asian currencies now?
We are not looking for stable exchange rates but for stable market conditions. The currencies of the Crisis countries, after they corrected some of their excessive depreciation, have been quite stable. In the context of a growing world economy, a favorable external environment plus the right economic policies, there is no reason to believe that these countries cannot maintain some stability in the foreign-exchange market.

What happens when China decides to be more flexible with the yuan regime? Are we beyond the point where that could destabilize the region's currencies?
I never believed that a change in the renminbi exchange rate was imminent. I didn't believe it in the past and I don't believe it now because the policy of a stable renminbi has not only served the region well, but has also served China well.

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But doesn't WTO membership give China the opportunity to allow more flexibility in its currency regime?
For the time being, China intends to stay the course. Over the medium term, three to five years out, there will be various other considerations.

What are some of these considerations?
In the future, the structure of the Chinese economy will further change. China will more closely be integrated with the world market. A number of reforms will be advanced further in China. In that context, exchange-rate flexibility would also be an option. As far as economic growth is concerned, China has maintained the high pace. In 1999 it will reach the official target of 7%. But deflation has not yet ended. That's why supporting macroeconomic policies, particularly an expansionary fiscal policy, are needed.

But reform policies appear to have slowed.
I don't know on what that judgement is based. Reform is a complicated, longer-term process and you could not expect it to proceed at an exactly even pace every month. You have accelerations and decelerations in the process.

Asia is experiencing the beginnings of an Internet boom. Is technology going to propel growth back to high levels?
I'm not able to make an informed prediction on this. If you want to understand the consequences of the growing Internet on Asian economies, you have to look at what the consequences were in advanced economies where this process started earlier. Growing use of internet will contribute to the increased productivity on which future Asian growth will have to be based, but it may not be THE major element in faster Asian growth.

Should Asia resign itself to the prospect that post-Crisis it won't be hitting growth rates as high as before?
Even before the crisis, there was debate about whether Asian growth will slow down because total factor productivity had not been very high and growth was more due to rising investment and use of manpower that couldn't be continued indefinitely. There is that possibility, but the debate was never fully resolved. On the other hand -- and this is why the Crisis was a blessing in disguise -- many important reforms are being carried out in Asian countries and these reforms will have the effect of increasing the efficiency and productivity of the economies. So I would not exclude that Asia will achieve very high growth rates again, but nobody can be sure whether sustained Asian growth will be at the same high rate as before, at the time of the Asian miracle.

But the quality of growth will be a lot better?
Definitely. The governments are also considering much more the quality of growth, the quality of public expenditures, social safety nets, environmental considerations and so on. Therefore, definitely the quality of the growth will be higher.

Are we equipped to avoid another meltdown?
Countries are better equipped to avoid another crisis, but nobody can be sure that the chances of another crisis will be completely eliminated. There may be another crisis. It may be of a different kind which we may have difficulty foreseeing. But definitely the probability of another crisis has been reduced because countries supervise their banking systems much better than before and that was the main issue of the crisis. Countries will not allow banks and other institutions to go into excessive short-term borrowing, an element that really triggered the crisis. And there will be many other elements in the economy that will be stronger than before and therefore reduce the possibility of a crisis. I wouldn't say the chances have been eliminated; I would say they have been reduced.

Could a hard landing in the U.S. be devastating for Asia?
It would affect the world economy and be damaging to Asia. However, our present expectation is that the U.S. economy will continue to have vigorous growth, although at a somewhat reduced rate, which is in a way welcome because it will prevent any inflationary tendencies from arising. But a slight slowdown in the U.S. economy will be more than offset by faster growth in Europe and Asia.

Do you have any regrets as you leave the IMF?
Well, if I look back at the crisis, I appreciate that it provided excellent experience and I am happy that the IMF programs were successful. But if I could go through this period once more, there would be many things I hope we could do better.

Such as?
This refers to a long list of details. However, I would not wish to change the basic strategy that the IMF adopted. This strategy was right. It was sound and the facts prove it. Countries quickly got out of the chaos of destabilized markets and then started to recover. So the strategy worked. It's only the details that were not always perfect.

Any New Year's wishes for Asia?
That Asia will return to high and sustainable growth by steadfastly pursuing the strategy that countries have already adopted: supportive macroeconomic policies and reform in the structural areas, in particular banking and corporations.

You must be happy to be leaving the Asia hotseat.
As always on such an occasion, there are mixed feelings. Yes, I'm happy in the sense that I'm leaving the Asian department at a time when Asia is back on its feet. But of course, I will miss the work with Asian countries, where I have met many interesting people and made many friends.

What will you be doing?
I have no firm plans yet.

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