From this week's AsiaWeek: Who Killed the Asian Miracle?
Don't let ideology cloud the search for real culprits
Ricardo Saludo, the author of this item, is an assistant managing editor of Asiaweek
WHO'S TO BLAME FOR the Asian economic crisis? In answering the region's favorite question, it's instructive
to recall the finger-pointing over the death of Diana, Princess of Wales. The tabloids, the chauffeur, the playboy, the
princess, the royal family, the missing Fiat's driver, the adoring public -- all of them in degrees large and small played a
part in the tragedy and have much soul-searching to do. Yet the way blame was laid, it seemed that finding fault in some
culprits somehow exonerated the rest. If the chauffeur weren't drunk or the paparazzi had not been on his tail, the
accident would not have happened. Ergo, don't blame Prince Charles.
The same search for a few guilty men may be muddling the post-mortem on the late Asian economic miracle. Currency
speculators, reckless investors and lenders, corrupt officials, somnambulant credit-rating agencies, national leaders in
denial, a heavy-handed IMF -- they all bear some responsibility for the looming regional recession. Yet depending on
one's job (foreign bankers think themselves victims), political needs (national leaders imagine foreign conspiracies) or
ideological bent (Western liberals lay it all at the bootstraps of lucre-loving autocrats), different culprits rise to the top of
one's shortlist of shame.
In the international media and at the recent World Economic Forum Annual Meeting in Davos, Switzerland, most
commentators have marched out three whipping boys. All have long been in the bad books of the West for sins against
democracy, free enterprise and rule of law. Leading the trio of archetypes is the strongman, epitomized by President
Suharto of Indonesia. Leaders in this mold promised economic progress in exchange for political subservience. Critics
now deride that so-called Asian development model for spawning cronyism, incompetence and corruption.
Also cast as villain is the crony capitalist. Philip Tose, the boss of failed Hong Kong merchant bank Peregrine
Investments, has famously emerged as its latest incarnation. Exploiting nepotism, networking or nightclubbing -- guanxi to
Chinese -- the crony makes deals and money, often violating sound commercial sense and the level playing field. The
clueless, corrupt but all-controlling bureaucrat completes the turmoil trio: paper pushers like Miyagawa Koichi and
Taniuchi Toshimi, senior regulators at the Japanese Finance Ministry, who were recently arrested for allegedly tipping off
banks about surprise inspections. By helping shield favored enterprises from open competition and prudent regulation,
these denizens of officialdom have eroded the financial and corporate discipline which ought to have been imposed by the
market and the law.
Undoubtedly, autocracy, guanxi and bumbling bureaucracy contributed hugely to the crisis, and their excesses should be
curbed. But for all their rhymes, are they the main reasons for the debacle? After all, they have been around since the start
of Asia's climb and, it must be acknowledged, even helped it along. In a seminal 1993 study of East Asian development,
the World Bank rightly lauded strong government and a competent bureaucracy armed with the right policies. As for
connections, they didn't hurt tycoons like Li Ka-shing and Robert Kuok -- as long as they stuck to business fundamentals
amid all the glass-clinking. (Li, for one, did not bail out his friend Tose, evidently seeing little commercial sense in doing
so.)
In sum, people who really want to get to the bottom of the crisis should also look at suspects other than those currently
under the floodlights. Everyone agrees, for instance, that the tens of billions of dollars in short-term foreign debt was the
trigger to the region's currency meltdown. Well, that mountain of IOUs was largely the work not of authoritarian leaders
or crony businessmen, but of foreign bankers chasing high returns and East Asian borrowers lured by low dollar and yen
interest rates. That authorities should have stopped the runaway lending long ago does not excuse creditors and debtors
once driven by irrational exuberance and now quagmired in defaults.
Speaking of regulation, one must also ascribe its failure partly to some aspects of the democratization and economic
liberalization much applauded by the West. Costly electioneering spawned money politics and cronyism. The licensing of
dozens of new Indonesian banks and Thai finance companies years ago imposed regulatory burdens that proved too
heavy. Today, advocates of open markets are wisely not pressing China to liberalize lock, stock and barrel. Indeed, the
world is relieved that Beijing is keeping its renminbi partly controlled and firmly at 8.30 to the greenback.
If there has to be a single scapegoat for the crisis, it is easy money. In 1986, Washington got Tokyo to loosen up on
monetary policy in a bid to boost imports. The tsunami of yen created Japan's late-1980s "bubble economy." When it
burst, Tokyo still kept funds dirt-cheap to prop up its banks. That set up East Asia for its own intoxicating fix of credit
explosion and asset inflation. Add to that the local largess for speculators and the well-connected. That flood of money
diluted prudence, bloated waste, damped thrift, watered unproductive investments, and made it simple to hose down the
consequences of misrule, cronyism and graft -- until the cash dried up. In Asia's debacle, poor government and bad
connections played key roles. But easy money was the root of all evil. |
