On the need to create internal demand in Asia.
Sounds good on paper, but when you're actually on the ground, it is very different. There is NO social safety net for 99% of people in most Asian countries to feel confident to continue to spend, once the general level of confidence in their economy has evaporated.
Consider the example of an average middle class professional in Jakarta pre-crisis:
He earns Rp 2M a month (=US800 pre crisis). He gets bonuses equivalent to six months' salary a year during good times (=US4800 pre crisis). His total annual spending power in US$ pre crisis: US$14,400. Pretty impressive huh?
Now let's see where he is today: he still gets Rp2M a month (if he is lucky), forget bonuses. His spending power is now US2,400 per annum, or one-sixth of what it was previously.
Without a social safety unbrella, do you think he will:
1. Do the right thing for the common good and spend, spend, spend
or
2. Deposit all his hard earned savings in the bank at 60% interest p.a.?
This is where textbook economics rubber meets the hard bitumen of real life, and it's no contest!
Many people I know have essentially stopped spending or business activities, and putting all the money in the bank, with what we know will be fatal consequences for the economy. They seem to be following the example of the Japanese, strangely enough.....
Best,
Steve. |
