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Monday, April 16, 2001
Reflections on the Asia crisis and Western solutions
Special to The Japan Times
Perhaps it was a good job that Supachai did not stand in Thailand's January elections, saying he wanted to devote all of his time to preparing to take over at the WTO.
He thus avoided the defeat that wiped out the government of Chuan Leekpai, in which Supachai was deputy prime minister and economic overlord. But he admits that one of the reasons for the government's defeat at the hands of Thaksin Shinawatra's Thai Rak Thai (Thais love Thais) party was the nasty economic medicine the outgoing government had administered after the 1997 financial crisis.
"Some voters told me bluntly, 'Supachai, you are traitors because you sold the country to foreigners.' But when you argue with them and reason and ask what we have done that other parties would not have done, they respond: 'We are bored with you; we need new faces.' "
With the advantage of hindsight, he believes that the government had no alternative but to give the medicine, but wishes that doctor International Monetary Fund had a better bedside manner as well as a few sweeter pills.
"The regaining of confidence was of the utmost necessity to stop the outflow of foreign funds and the downward slide in the baht, and regain business confidence," he asserts. "If you look backward -- of course, you always tend to reason with hindsight -- we shouldn't have raised interest rates so much; we should have injected more funds earlier; should have helped clients more; but in the heat of battle against the crisis, you look at the figures every day.
"People were liquidating their investments and money was leaving the country. When we came in in November 1997, we wanted to look at the debt profile of the country -- but there was no debt profile. Nobody knew at that time how much funds were leaving the country."
The government acted, accepting advice from the IMF, and the price was not just unpopularity but a deep and lasting hostility to liberalization and globalization.
Supachai clearly feels that Thailand was let down by listening too hard to an IMF that was dominated by the U.S. Even though he was economic supremo, he feels that Thailand was forced into an overtight corset by the finance ministry, which followed the IMF's prescriptions. One argument was over interest rates. Supachai wanted a gentler approach.
"My argument was to make it flexible, test the market. My economic theory is that there can never be any rigid public policies. You have recommendations from the theory books, but application is flexibility. Test it, like in a laboratory. If you move interest rates down a bit, then it will affect some macroeconomic factors, then you can go back to your policies, the drawing board. If it affects exchange rates, then we might have to do something else or move it back. We have to live and learn, but you never know if you keep (interest rates) fixed for long periods."
Other arguments followed on budget cutbacks, on the value of the baht and the pace of financial restructuring. Supachai asserts that there was an ironic mismatch.
"They wanted us to have a budget surplus. Imagine. The only country that they gave funds to and Thailand was running a 1 percent budget surplus. I argued that we must have a little bit of a deficit to compensate for the outflow of funds."
Now preparing for his global job, Supachai raises important questions about whether the view of the world from Washington and the West is the best.
"According to the Western concept of capitalism, you have to fall on the street, take the bill and live on your own. And society can move on. But this is not the way that society changes in Asia. An Asian would compromise, be cautious, not like to take risks, would not like to lose face. (The mentality is) to nurture and keep institutions alive, even though you know they are half-dead. You can say this is wrong or right, but this is the way we understand. "We do not want to disrupt things or have an abrupt change. We cannot have aggressive resolutions of our financial institutions. We may have to pay the price in terms of being slow. People from outside may look at us and say you are not very efficient, and I will have to accept it.
He pleads that in an increasingly pluralized world, Washington and the international financial institutions must recognize that the Western model of capitalism must be tempered by the demands of society.
"At the end of the day, it may take longer in Asia, but it preserves the tissue of society. "I know that this is not the most efficient solution or best practice of a market economy. But you have to balance market economy with the Asian mentality that society should stay together. Here, elderly people are still being taken care of by their children, so you do not go to the unemployment office to ask for pay. So when we get unemployed, we suffer but we share. We eat a bit less, we share the house accommodation, and society stays together."
Kevin Rafferty is Euromoney editor in Hong Kong.