CTC,
I am not surprised to hear that the core manufacturing businesses were not productive for several companies. It has been a well known fact for a while that provided with cheap capital these companies were selling below cost to gain market share and investing in long-term projects with monopolistic goals (which I repeat for the third time was foolish and deserving of blame). That the cheap flow of cash was a byproduct of interest rate/currency arbitrage is not new information either, for it is by default true for countries with fixed currency rates and different growth and real interest rates. So, why is the NYT article an eye-opener? Given the two parts of the equation, banks were not unwilling to lend to companies in S.E. Asia. Now that they are, seems like they really required the NYT to sum it up for them. Frankly, I am disappointed.
The fact that they were arrogantly critical of USA has nothing to do with financial and economic analysis, at least in my book. The fact that you of all people bring it up surprises me.
As for central banks getting involved in currency arbitrage, what do you say about the US Treasury getting involved in dollar-yen exchange rate stabilization? Sorry, but you define the purpose of banks too narrowly IMO. Financial institutions being one of the main pillars of the modern society almost always exist to fulfill whatever social charter that they are entrusted with. These charters vary depending on the particular social needs. Which is not to say that the charters are necessarily wise, but rather that the existence of differences is realistic given diverse social norms across the world.
For example, the US Fed's charter is to maintain price and job creation stability while the EMU's charter is price stability only. Hardly surprising given the post-WWI inflationary experience that has seemingly forever scarred the European psyche. Similarly, it is not surprising at all that currency rate stability was one of the main charters for the central banks of countries with small domestic markets and booming export-oriented economies. Economics is a social science after all where no one size fits all.
Currency speculators have succeeded in the past in bringing down the currencies of many countries including Britain, which promptly broke the currency peg resulting in export growth and economic recovery. The S.E. Asian countries were initially prevented from doing so to protect the lenders. Perhaps they wouldn't have faced a recession if allowed to do so from the first. Perhaps the existence of an AMF - which BTW was proposed mid 1997, much earlier than the full blown crisis phase, but promptly killed of in fear that the S.E. Asian countries will go on their own path and not heed IMF concerns - would have helped.
-Apratim. |
