14 January 1998
The IMF and East Asia
In the wake of IMF intervention in South Korea, Daniel Nassim censures
those fuelling anti-growth sentiments in East Asia
The most common response to the collapse of many of East Asia's currencies
and stockmarkets in recent months seems to be 'told you so'. Most Western
commentators argue that they knew all along that Asia's economic miracle
was unsustainable.
Rapid economic growth itself is generally seen as the fundamental cause of
the problem. For example, a Financial Times study of the Asian crisis
started with the observation that 'headlong economic growth lay the seeds
of trouble' (12 January 1998). And Will Hutton, the economics writer and
editor of the Observer, asked rhetorically: 'Do we want a global system
that can offer a Thailand or Malaysia double-digit growth rates at the
price of knocking them back five or 10 years when their corrupt and
authoritarian regimes lose control of their economies.' (Observer 31 August
1997)
Similar anti-growth comments abound in the discussion of Asia's current
troubles. The desire of Asians to improve their lives, and the partial
success they have had in achieving this objective, is often condemned as
greed or hubris. Asian governments which pursue rapid growth are labelled
corrupt.
The consequences of economic growth are also derided. Western pundits tend
to view the development of the mass ownership of cars and the growth of
modern industry with distaste. Asian people would, in their view, be better
off if they stuck to their traditional lifestyles rather than pursue a
modern lifestyle. A Guardian editorial on last autumn's forest fires in
south east Asia said they were 'a particularly instructive lesson in the
downside of economic growth Asian-style.' (26 September 1997)
This approach is entirely irrational. There is no reason why economic
success should necessarily be followed by failure. It is not a question of
what goes up fast most come down to earth at an even greater speed.
It is certainly true that Asia's stockmarkets have plummeted recently. But
the relationship between the financial sector and the real economy is not
straightforward. It is often the case that stockmarkets can boom while
economic growth remains sluggish. The reverse can also be true. Because
East Asia is such a profitable place to invest there are large amounts of
cash in their economies. This level of liquidity may also be a cause of a
certain amount of stockmarket fluctuations as some of the cash will
inevitably be used for speculation.
The fact that many hundreds of millions of people in such countries as
China, India and Indonesia still live in desperate poverty is not an
argument against growth. On the contrary, Asia's economic growth has not
gone far enough in transforming their lives. It is only through more growth
that such people can enjoy the fruits of modern life.
The anti-development perspective reveals more about the mindset of Western
commentators than about the Asian stockmarket crisis. Their view is that
slow but steady growth is the only way forward. They are the kind of people
who would rather drive along a main road in second gear than use the top
gear on a motorway.
This approach has informed the International Monetary Fund's adjustment
programmes for Asian countries. Its approach to dealing with every country,
even a relatively industrialised one like South Korea, seems to be to order
a harsh austerity programme. Economic growth is stalled, at the very least,
as consumption is curbed by IMF edict. There is a serious danger that such
an approach can transform a financial crisis into an economic recession.
Such an over-cautious approach condemns the people of East Asia to maintain
their present standard of living. It would surely be better to work out
ways of ensuring that all Asians benefit from the most modern technology
available.
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