Last week I noticed two important articles in the press regarding the Asian recovery. “Fortune” magazine, representing the new “establishment” view, ran an article celebrating the Asian economic recovery, giving the IMF credit for the improvements. In sharp contrast, The “Far Eastern Economic Review” published a more unorthodox article, suggesting that the Asian economies’ recovery from crisis was largely an illusion.
The article in “Fortune” was written by J. Bradford Delong, and entitled “Emerging Markets Are Back. Thanks, IMF.” The title alone was enough to start me seething, as I believe the IMF’s flawed policy advice was the primary cause of the Asian economic crisis. The article argues that the IMF has helped Asia, stating that positive GDP growth in the region shows it has “recovered more dramatically and swiftly than anyone predicted.”
How wrong he is. I recall clearly that right after the mid-1997 devaluations (which many believe were inspired by the IMF), numerous economists applauded the move, expecting only a slight dip followed by strong growth the very next year. Instead, economies were devastated, and IMF funds were deployed to help bail out foreign lenders. Even after the recent GDP growth, measured in dollar terms, Thailand’s 1999 total annual economic product is still down to 1993 levels. In South Korea, 1999’s GDP was near 1994’s levels. In other words, these economies were set back 6-7 years because of the crisis. In Indonesia, many suggest that the IMF acted to create both economic and political instability, leaving the country in turmoil.
The Fortune article concluded that “the IMF and company did a number of little things wrong, but they did the big, necessary things right.” This conclusion is based on his analysis that 1) the IMF, World Bank, and U.S. Treasury may be paid back their $60 billion of emergency loans into Asia; 2) the Asian economic crisis might not turn out to be as bad as the Great Depression; 3) most Asian economies have experienced one meagre year of recovery; and 4) using taxpayers’ money to guarantee or bail out failing foreign debtors is “necessary” and “right.” Of course it’s not much of an argument, but more importantly, it serves as the establishment’s endorsement of the IMF and the World Bank. I’ll be watching to see if Professor Delong’ s love letter lands him a cushy tax-free job with the IMF soon.
The “Far Eastern Economic Review” published a far different article by Henny Sender, entitled “A False Dawn.” Essentially, the article suggests that billions of dollars in loans from the IMF and friends simply patched over fundamental problems in Asia, without solving them. The writer provided examples of how debt restructuring among corporations and financial institutions in Thailand, Malaysia, Indonesia, and Korea are still far from being resolved, and suggested that last years’ recovery was due mostly to positive conditions in the rest of the world, and a relapse is possible.
Asian stock markets are certainly not ready to thank the IMF, as “Fortune” proposed. Instead, markets seem wary of a return to economic weakness, giving investors very little to be thankful for. In dollar terms, from June 30, 1997 to July 27, 2000, the South Korean market is down 27%, Malaysia 50%, Thailand 66%, Philippines 70%, and Indonesia 81%. This year through July 27, in dollar terms, South Korea has declined 27%, Malaysia 1%, Thailand 44%, Philippines 39%, and Indonesia 42%. Given this performance, it’s outrageous to give the IMF a pat on the back for their actions in Asia. Instead, I’d carefully analyze ongoing problems in the region, and hope that these can be overcome without further IMF meddling.
