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Wednesday, Jan. 11, 2006
Can Asia bank on West?
By TOM PLATE
LOS ANGELES -- I recently visited the cradle of the "Asian financial crisis," Thailand. This is the name given to the well-documented sequence of events between 1997-1999 that sent many of Asia's economies and currencies into terrifying tailspins. The crisis originated with the baht, Thailand's currency. In Bangkok, I talked with the country's minister of foreign affairs about whether he had any worries about a second coming of that kind of trouble.
Please note that Thailand's economy, though generally well-recovered from that crisis, is far from huge. Yet, along with South Korea, Taiwan, Singapore and Hong Kong, it forms what is commonly known as Asia's "tiger economies." The growth of their combined middle class has created a whole new consumer base for the region. Nonetheless, Thailand, about the size of France, is no island to itself. During the crisis, its economy was devastated by a combination of Western speculation against its currency and by the country's own mismanagement. When the value of the baht plummeted, many Thais lost their jobs and businesses failed. The disarray in Thailand was virulently contagious, infecting countries across Asia with various currency ailments.
Today, however, Foreign Minister Kantathi Suphamongkhon, the country's well-traveled chief diplomat is relatively upbeat. Thanks to a raft of internal economic reforms in Thailand as well as a more aggressive trade policy, things economic are on the whole being righted.
This was good to hear. The chronic worrier that I am, the mental image of Asia having to undergo yet another such ordeal is unnerving. But the foreign minister explained that Thailand's "dual track" policy has made it more resistant to external economic shocks and painted a general picture of greater regional economic integration and, interestingly, of the generally helpful economic role of China in the region.
Beijing is particularly credited with not having devalued its currency during the torrid crisis, a move that would have taken advantage of other crippled economies in the region while they were down. By walking on the high road then, China helped the region recover more quickly than expected.
But regional memories of that crisis tend to work against the United States. In matters monetary, alas, the lead institutions of the West are not generally held in high esteem in Asia. The two giants here are the World Bank and the International Monetary Fund.
The latter, in particular, was the lead agency of Western aid to the region during the financial crisis. But heavy-handedness, stylistic arrogance and a lack of flexibility soured the effort, leaving many Asians infuriated rather than grateful. The IMF has been trying to mend its undiplomatic and uncompromising ways.
In general, the World Bank has a kinder, gentler image in Asia. That image was due in part to its personable former head, James Wolfensohn. But now that he is gone, the World Bank and its more friendly critics are taking a hard look at the need for reform. One is Jessica Einhorn: Now dean of the prestigious School for Advanced International Studies at Johns Hopkins University, she served almost two decades at the World Bank, including two year as its managing director. In the current issue of Foreign Affairs, the authoritative U.S. journal, Einhorn argues for nothing less than a major structural re-rooting of the World Bank.
In a sweeping and instructive essay, the dean points out how little the institution has changed since its founding in 1944. In fact, she argues, the bank's outdated financial structure is a threat to its continued relevance. The bank's new president, Paul Wolfowitz, the former number two at the Pentagon under Defense Secretary Donald Rumsfeld, is urged to end the bank's involvement in lending to middle-income countries in order to spruce up its effort to help struggling poor countries.
To outsiders, the call for the bank to focus entirely on the lowest tier of the poor makes imminent sense. And the fact that the recommendation comes from a widely respected expert only adds to its credibility. But all bureaucracies have a way of having their own way; most would rather stay as they are, even as they wither away over time, than take the tough preventive measures needed for true institutional reform.
Don't expect that to happen with the World Bank. Similarly, how fundamentally different is the International Monetary Fund from what it was in 1997? The region will have to live with the reality that the IMF and the World Bank are what they are, probably won't change much, and may not be up to the next regional financial crisis. While reforms are clearly needed, both organizations seem set in their ways and -- like an old married couple --are used to their routines.
For the next regional financial crisis -- and it would be insane to assume that nothing bad is ever going to happen -- resolution will almost certainly have to come from within the region. Perhaps Asia didn't realize this in 1997; but it must know now.
UCLA professor Tom Plate is a member of the Pacific Council on International Policy. Copyright 2006 Tom Plate