THE AFTERMATH OF THE ASIAN FINANCIAL CRISIS:
Prospects for the Near and End Term

Oleh : J. Soedradjad Djiwandono
Gurubesar tetap Ilmu Ekonomi, Universitas Indonesia


POLICY AND INFRASTRUCTURAL CHANGES TO FACE FUTURE CRISIS?

  • The issue is how to manage crisis; how to reduce its economic, social and political costs?

  • Ingredients : -first and second generation liberalization policies; the first generation liberalization in the tradition of Washington consensus required some adjustments and revisit after the crisis ( sequencing, the need for prudent process of liberalization, especially in financial liberalization, new thoughts on exchange rate policies, substance and process of liberalization ). Second generation of liberalization, the need for strengthening institution or infrastructure in finance: independence central banking, supervision and regulation, transparency and governance.

  • Some rough assessments about what happened in Asia. Liberalization of capital and what happened in Malaysia. Fixed exchange rate with CB and floating rate. The role of banking in the corporate debts. Recent development; is there new tendency toward protectionism? What is the prospects of new trade round in Seattle? Liberalization in finance and in trade?

  • Some consensus on : go slow with capital inflows, especially short-term, better monitoring in the recipient countries and supervision in lender countries; international standard. But, social safety nets, poverty reduction. Changes in multilateral institutions (IMF) . In general weakness in banking system and imprudent corporate borrowings. Strengthening financial institutions: robust banking industry, independent central banking, good banking supervision and regulation, legal base and judiciary system. Corporate and state governance and transparency.

  • Issues : macro and short run combined with micro and long run, are they doable? Are there liberalization fatigues after the crisis?

REGIONAL PERCEPTIONS OF THE AMERICAN ROLE?

  • IMF-US (Treasury) conspiracy? The news about what alleged to be Mr Camdessus’ confirming IMF role in the downfall of Suharto government didn’t help the situation. For Suharto IMF was just going to spoil his fun ( what does clove have anything to do with monetary policy? ) IMF received more than proportional criticisms for what was done facing Asian crisis. But, IMF received more than proportional credits as well.

  • Sentiments of anti foreign intervention or foreign ownership: social problems of corporate and banking restructuring involving multilateral institutions dominated by the US and industrial countries and foreign companies.

  • Trade issues: anti dumping excesses? Agriculture? Textile ? IPR?

  • Personal assessments about IMF and US Treasury role during the crisis and its resolution

JAPANESE AND CHINESE?

  • Issues of a reluctant world leader : the abortive proposal for setting up Asian Monetary Fund, the use of yen in international payments.

WHAT MORE SHOULD THE US DO?

  • Reduce over generalization and stereotyping. Shallow analysis ; wrong assessments about Suharto in the past and Habibie later. What about Gus Dur?

  • Look at the concept but not the process of its implementation: privatization (Stiglitz in new paradigm of development : not just good concepts are important, but also the process

  • Backlash of globalization and liberalization after the crisis. Capital control?

  • Should be proactive not reactive out (euphoria during Habibie administration. What about Gus Dur?)

  • As in first and second generation of liberalization; Washington consensus needed some correction and adjustment (Stiglits: the consensus is wrong!). The second generation of liberalization drive needs to pay attention to the processes, the details (the devil is in its detail) and institution or infrastructure. But it implies long terms, involving micro issues, not just macro and short-term. A balanced economic policy, easier said than done.

 

Cambridge, December 1, 1999.

 

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