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Five truths from Asia

By Tommy Koh

23 February 2009

In 1997 and 1998, East Asia suffered a serious financial crisis that wiped out decades of progress. Unemployment and poverty increased substantially in countries such as Indonesia and the Philippines. The political leaders of Indonesia, South Korea, and Thailand lost their mandates and were replaced.

Although Thailand is an ally of the United States, it is not as important an ally as Mexico, where the United States provided a bailout to prevent a surge in immigration. To the disappointment of the Thai government and its people, the United States declined to come to its rescue. This may be one of the reasons why Thailand has drawn closer to China and downgraded its relationship with the United States.

The International Monetary Fund (IMF) worked closely with the US Treasury in the rescue of Indonesia, South Korea, and Thailand. The IMF prescribed bitter medicine: distressed financial institutions would be allowed to fail in order to avoid a “moral hazard.” In the case of Indonesia, the IMF prescription went beyond the financial crisis. It forced President Suharto to accept a humiliating wholesale reform of the political economy. Many Asian leaders suspected that the IMF–American agenda actually included regime change.

The United States, supported by Europe, lectured Asia during its financial crisis. Asian governments were told to avoid becoming overleveraged, to strengthen regulations, to increase transparency, to reduce the role of the state in their economies, and to pursue responsible macroeconomic and fiscal policies.

Some of my American and European friends were unsympathetic during the Asian financial crisis. A few even gloated over Asia’s misfortunes, displaying some of the West’s worst prejudices toward Asia.

A decade later, fortunes have been reversed. Asians have watched the Western financial crisis—including the staggering government bailouts in the financial sector—with disbelief. The crisis in America spread rapidly to Europe, where governments had to nationalize or inject capital into banks to prevent bankruptcies. Two European countries, Iceland and Hungary, have sought the help of the IMF.

Unlike their Western counterparts a decade ago, no Asian leader or pundit has gloated over the misfortunes of America and Europe, or presumed to lecture. Instead, Asians, have tried to be helpful where possible and where our help is welcomed. We realize that we live in the same global village, and when the mansions of the two wealthiest families are on fire, the prosperity and security of all are threatened.

So, what lessons can be learned from these two crises?

First, be humble and refrain from lecturing. I would respectfully point out that the United States did not practice what it preached. It is overleveraged at all levels. Its regulatory structure is weak. Its financial products, especially the securitized products, lack transparency. It has not pursued responsible and prudent macroeconomic and fiscal policies.
Second, practice the virtue of thrift and follow the simple rule that one should live within one’s means. Thrift has largely disappeared in America. Households save only two percent of their income; the average American household has nine credit cards and a debt of $17,000; the American government owes the world more than $10 trillion. It has become the world’s largest debtor nation.
Third, we must find the courage to confront our problems rather than pointing the finger at scapegoats. Instead of facing up to America’s problems of low savings and overconsumption, some US leaders are blaming others. For example, US Federal Reserve Chairman Ben Bernanke has attributed the current financial crisis to “global imbalances” and the “excessive savings” of Asia. Strangely, we Asians get blamed both when we have too much debt and also when we have too much savings.
Fourth, it is to be hoped that this crisis has diminished the attractiveness of Wall Street’s style of capitalism. Unfortunately, the “greed is good” culture has infected some Asian countries; excessive pay for senior management, for example, has become fashionable in certain parts of Asia. This is not consistent with our communitarian values or our emphasis on team work and equity.
Fifth, the latest crisis has reinforced the fact that global economic and financial power is slowly and ineluctably moving east. This makes forums such as the Group of 7 (G-7) and G-8 moribund. Without the presence of China and India, these forums do not reflect the realities of our contemporary world.

Comment [5]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

I agree and appreciate the persepective to both sides of the world. It is interesting how this reading discusses human behavior and the want to be “#1” financially and socially. As long as free will exist whether regulated or not, we as people of the world will continue to push the envelope. Love the read, disappointed in the chance that I will ever see the day of true change!

Posted 24 January 2010, 15:43 by Jason R.
I thoroughly agree with your viewpoints. However, Ben Bernanke’s claim of the Savings Glut, and Global Imbalances cannot be disregarded either. Since 2003 when the crude oil prices started spiralling out of control, the Asian ecomonies (including Middle East) invested roughly $1.4trillion in the developed world. Out of that the US absorbed 44% of the investments.

The exotic products, and the mouth-watering returns promised on the same by the Wall Street fraternity compelled the Asian investors to offload their savings to buy the G-7 assets, which were least understood by the US and Asian authorities and poorly regulated by the US Govt. Hence, although global imbalances were one of the reasons, but the very reason came to existence, because of the favorable climate fomented, primarily by US govt’s feeble regulatory environment for the speculative investments.

Hence, the responsibility for the mess should be owned more by the west than by the Asians.

Posted 8 September 2009, 14:57 by Snehal Manjrekar
A “bold and a beautiful” write up.
I am really impressed with the author’s comparison of the two crisis situations- one, that took place in east asia and did not transmit itself to the rest of the world and the other which originated in developed world and engulfed the entire world.
We should realise that the entire world (i.e. developed or developing countries)is composed of individuals only. The actual problem lies with those human beings who get intoxicated with wealth and power and corrupt the system.The present problem with which the entire world is plaguing is a result of greed and selfishness.We focus on our own welfare at the expense of others.
I think the crisis and meltdowns can only be prevented if we can transform our thinking and inculcate values right through the childhood with the help of our eductaion system.

Posted 9 April 2009, 03:10 by Kalika Bansal
Interesting comments, it is ironic to note how America has responded differently when a finanical crisis has hit its own backyard.

However, I disagree with you on the point of the problem of Wall Street’s “Greed is Good” mentality. I feel the problem is not with greed itself, but with the lack of accountability for the risks taken in pursuit of greed. Incentive programs on Wall Street and elsewhere were focused too much on the short-term like quarterly or annual bonuses. It creates an environment where the person involved in the transaction cares only about the immediate payoff and not about the long term effects of their decisions.

Greed, if properly aligned with responsibility is the greatest force for positive change in the world. The pursuit of one’s desire, whether it be a better life for one’s family or a new car, is the driving force of progress. It is the motivation behind why young people study hard at school and parents working that extra night shift.

Yes, I agreed with you that excessive greed is bad, as evidenced by the current fisaco, but I would be more worried if Asia started to lack greed in the future. The pursuit for a better life was a main driving force behind the impressive improvement in living standards in Asia during the past 50 years.

Regards,

Posted 25 March 2009, 10:39 by Alex Kwong
I doubt it very much that you will receive any adequate responds from the western readers. You hit the nail right on the head! Bravo!

Posted 11 March 2009, 18:15 by Kelvin C

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