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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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