It seems to me that the Asian crisis is an interesting issue to be deeply analyzed by those who try to understand today’s phenomenon.

Explanations about world’s economic phenomenon in 1998 have been long and familiar. Although given by economists from different schools all of them are groundless and not very clear. Many have blamed the market for causing failures in the System which ended in a publication of papers with a high arithmetical complexity, intricate statistics and vast attempts to demonstrate what is indemonstrable. Meanwhile, in the main economic think tanks, ills harming Asian were being identified.

Big Regional Problem
After thirty years of economic boom, their large debt -needed to keep an overvalued rate of exchange- plus a controlled banking system, took Asian economies to be dependent on world financial organizations for loans.

So the world discovered the "yellow fraud". Political corruption plus a policy of intervention had isolated industry from market forces -by assigning the capital to certain industries.

The big mistake was evident in the middle of 1997 when the bath devalued in Thailand and the weakest Asian countries fell down. But officials diminished the importance of this problem.

What happened? The growth rate fell down, unemployment rose up and high interest rates limited investment and consumption. In addition, private bankruptcy and political unrest provoked the fall of the governments of Indonesia, South Korea and Thailand. Even Hong Kong’s strong economy contracted two points in the first third of 1998. Singapore didn’t make big difference. Last but not least, the economic recession of Japan -the region’s leader- didn’t free a way out of the crisis.

Investor’s Behavior
In these financial world-wide extension times it’s possible to trade in a day a greater amount of money than that of the USA’s budget. So it’s fair to ask about investor’s responsibility.

First, I can say that investors were authorized by public policy to make short term investments only. This gave them the chance to get in and get out of Asian financial markets but not the possibility to make long term considerations.

Next to governments fault are the IMF and the World Bank. As they worked as a rescue team for investors during the Mexican crisis, they offered great incentives to invest in Asia -in spite of high exchange risks. Doubtless, whoever gets involved in financial tasks in a country that can’t offer a reliable juridical and financial order, it must do it under his or her own risk.

New Year: New Reforms or New Controls?
In order to prevent economic shocks we should choose between the follow:

To do it wrong. We can forget about basic reforms and take Paul Krugman or Joseph Stiglitz’s solutions. They think that capital flow should be controlled allowing the entrance of capital but controlling fund’s withdrawal. These controls may prevent great shocks but basically hinder capital’s flood to those countries that need it the most.

To do it right. I can’t forget that Asia has always been admired because of its large markets, its hard workers, its excellent infrastructure and its great talent. All these factors plus the political decision to reform the banking system, to move politicians away from loans distribution and to get a healthy currency will create trust in world markets.

(c) Eneas Biglione - 1999

Publications:
Fundacion Atlas 1853 (Argentina)