Fifteen months into the economic crisis which has knocked region-wide growth from annual averages of 5 – 6 % per cent to an estimated contraction of at least – 10 per cent (estimates for Indonesia vary from -15 to – 20 per cent for 1998) it seems that Asia has finally tired of waiting for the US, the IMF and the market to solve the problems. Even dutiful countries such as Thailand and South Korea, which have followed carefully the IMF policy advice, are only now beginning to see some tentative currency stabilisation, but in the meantime high interest rates and tight monetary policy have strangled the real sector of cash and urgent intervention is needed to stop the downward spiral.
Impatience at the lack of decisive action from the G7 and the failed IMF policies may finally push Asia to take matters into its own hands.
Japan’s initiative to establish an Asian Regional Fund – which was comprehensively blocked last year by the IMF and US – reappeared through the backdoor at this year’s IMF and World Bank Annual Meeting. Dubbed the Miyazawa Plan – after Japan’s Minister of Finance – the $30 billion package is earmarked for medium to long term financing and to bridge short term capital gaps. Mr Miyazawa has indicated that the $30 billion limit is not fixed and that he ‘hopes that the aid package would lead to wider use of the yen in Asia and perhaps to the creation of an Asia Crisis Fund.’
In stark contrast to last year’s black-balling, the IMF and World Bank supported the proposal, while US Treasury Secretary Robert Rubin gave the plan a muted reception, adding that “Japan would be better off looking after its own problems first.” But in fact, by pumping cash into the Asian economies and cleaning up bad loans, Japan is looking after its own problems. Not only are Japanese banks heavily exposed, but Asian-based Japanese manufacturing has focussed largely on developing domestic markets with strong import links back to Japan. Plunging consumer demand has seen local sales drop while currency devaluations have pushed up the price of imported components and increased price competition in the region. Growth in consumer demand and currency stabilisation will be good for Japan.
Ironically, the US also launched a proposal to establish a quick-disbursing fund through the IMF which would provide short-term cash for countries threatened by investor panics, that would be exempt from usual IMF conditions and avoid time consuming negotiations. Apparently Japanese Ministry of Finance officials are rather bewildered as to how this is any different from Japan’s proposal to establish an Asian Monetary Fund
Apart from the Miyazawa Plan, there was little good news for Asia at the IMF and World Bank meetings. The next opportunity for Asian governments to do something about the deepening recession will be at the November APEC Summit in Kuala Lumpur which, unlike last year’s whitewash when everyone agreed that things would be fine provided they kept taking the IMF medicine, promises to be much more lively.
APEC meeting could be the key
Indonesia’s Foreign Minister Ali Alatas, in a recent newspaper interview, urged APEC to “adjust” to the reality of the region’s economic crisis by shifting the focus from trade reform to finding ways of overcoming the damaging side-effects of huge and unpredictable capital flows.
“What needs to be done is that we should together study it, (and consider) whether some regulation is necessary, whether there should be some form of regulation on monetary and financial markets,” he said.
This call was echoed by Australian academics and political leaders. Darby Higgs, deputy director Australia’s National APEC Study Centre, said ”It’s pretty pointless to wander around the region and tell people who do not have enough to eat that everything is going to be all right because by 2020 we are going to have free trade.”
”The original aim of APEC was to increase the living standards of people in member countries, and I think that it’s got to go back and put this at the forefront rather than saying APEC is just about liberalisation trade targets and so on.”
”APEC should be doing more in terms of basic humanitarian aid, in terms of repairing economies in trouble on a social level instead of waiting for an economic recovery which might not happen in the short term,” according to Higgs.
Former chairman of the APEC eminent persons groups and director of Washington-based Institute for International Economics, Dr C. Fred Bergsten, also sees APEC as the only viable forum for dealing with Asia’s problems.
Speaking at a seminar organised by the IIE during the World Bank and IMF Annual Meetings in Washington, DC, Bergsten vented his frustration at the lack of action of the G7. “They have come up with nothing,” he said. ” The global economy is in crisis and the world’s economic leaders have no answers, no vision.”
Bergsten proposed that Asia urgently needs to take matters into its own hand by launching a region-wide, concerted and coordinated strategy of stimulating domestic economies by reducing interest rates, increasing money supply and increasing government expenditure.
Export-led recovery will not work, he says, because the countries in crisis depend too much on each other and on the stagnating Japanese economy. In addition, the US is reaching its limit for soaking up excess production without triggering protectionist reactions. The five countries most effected by the Asian crisis, Thailand, the Philippines, Malaysia, Indonesia and South Korea are heavily integrated into the Japanese economy and a slow-down in demand from the region quickly impacts on Japan: for the first quarter of this year Japan’s imports from the Asian Five were down 18 per cent, and its exports down 33 per cent. The slump in regional trade has been dramatic and as countries compete with each other for external markets, they push down prices which in the long term damages their own earnings. According to Bergsten, only a coordinated effort would stop the recessionary spiral.
Bergsten is a die-hard neo-liberal on most counts and doesn’t question the benefits of free trade and financial liberalisation, however his suggestion that governments should increase expenditure opens the possibility for a wideranging debate on how that should be spent, and how to balance short term measures against long term goals of equity and environmental sustainability.
Bergsten is floating the idea through the APEC eminent persons group and will possibly engage in some ‘shuttle diplomacy’ between now and the APEC Summit due to be held in Kuala Lumpur on 15 and 16 November.
The Summit itself, though, is under a cloud. Breaking with ASEAN’s long self-interested tradition of non-interference, Indonesia’s President B.J.Habibie and Philippines President Joseph Estrada, have spoken out against the sacking and jailing of former Malaysian Minister of Finance, Anwar Ibrahim, threatening to boycott APEC. US President Clinton has also staked his position by announcing that he will not meet with this year’s APEC host Dr Mahatir Mohamad outside the formal Summit. Although the stated reason is displeasure at Mahatir’s treatment of Anwar, one can’t help feeling that it has the added spin of punishing Dr Mahatir for having the audacity to impose capital controls.
Dr Mahatir has been a vocal critic of APEC over the years, seeing it as a vehicle for promoting the US trade agenda and overriding Asian interests. Thus far, APEC has made little progress in achieving effective regional trade liberalisation: although there are some impressive agreements they are not binding and the targets are voluntary. In the present climate, there is a fear that countries will retreat into trade protectionism. At this year’s WTO Ministerial Meeting in Geneva, US Trade Representative, Charlene Barshefsky commented that “we would be learning the wrong lessons from the Asian crisis if we retreat into protectionism.” It will be interesting to see if the US is so bullish about trade liberalisation at this year’s APEC given mounting domestic pressure to take action against alleged dumping of South Korean steel and as the global financial crisis starts to threaten US growth prospects.
If the APEC agenda consolidates around developing a regional response for stimulating growth and establishing a regional framework to slow down speculative money, domestic Malaysian politics may be set aside. If, on the other hand, the US decides that it cannot support an Asia-led initiative for regional economic recovery – which would take the policy initiative away from the US — they could well insist on sticking to APEC’s trade liberalisation schedule or play up the human rights card as a way of further discrediting Dr Mahatir. By doing this the US would derail the APEC Summit and reduce the chances of developing an concerted strategy to address the economic crisis and control rampant speculators.
* Nicola Bullard is a senior associate with Focus on the Global South
