Madeleine Wackernagel : Taking Stock
One subject has dominated the financial news in the past six months – the Asian crisis. The coverage has been phenomenal, with every economist and his neighbour wading into the debate, dissecting the causes, prescribing solutions.
Not all the analysis has been correct, and much of it has been emotive. The doomsayers were quick to add their penny’s worth; the world was heading for a slowdown as the Asian flu spilled into other regions.
But all is not lost. For only the second time in its history, the International Monetary Fund (IMF)has brought out an interim report on the world economic outlook, and the view since October, when the fallout was at its height, has brightened considerably.
Indeed, the most immediate indication that a recovery of sorts is starting up in the four worst-affected Asian countries is a rebound in the stock and currency markets, albeit off very low levels. Both Manila and Taipei were strong this week, but threats of a strike dampened investor spirits in Seoul while riots didn’t help shares in Jakarta.
The IMF does not expect this “crisis” to linger on much beyond mid-year. That doesn’t mean an instant reversal in the four countries’ fortunes. Thanks to the tough conditions imposed by the fund, their growth levels have been severely downgraded. But it does provide hope for the rest of us.
In the United States, President Bill Clinton’s Council of Economic Advisers this week shrugged off the Asian effect, even going so far as to say it may prove good for the US economy – by dampening inflationary pressures and reining in growth.
Would that we had the same problem, but the message is clear: the contagion has been limited and few areas outside South-East Asia will see a marked slowdown this year.
That doesn’t mean we can sit back and gloat. South Korea is already experiencing the pain, with growth no longer expected to outpace 2,5% in 1998 – this in a country where 6% is regarded as feeble.
Reaction has been swift; discontent is rife and unions are threatening to block the proposed reforms. But president-elect Kim Dae-jung is determined to go ahead; indeed, he has gone further than the IMF’s recommendations, deregulating financial and labour markets and highlighting good governance.
So the long-term outlook for the region’s economies is bullish – and that means a resurgence within a few years.
In the meantime, Africa would do well to put its house in order to be ready for the competition. The continent is not expected to suffer much as a result of the crisis – the IMFexpects 4,7% growth in 1998, a downward revision of only 0,3 of a percentage point on its previous projections. But, says the fund: “There will be some negative impact from the slowdown in global growth, its effects on commodity prices, and the competitiveness gains made by some trading partners.”
And therein lies the rub. At an IMF briefing this week, the point was made again and again that with the right regulatory environment, low tariff barriers and policy reform, investment will come of its own accord. A very un-PC view indeed but certainly pragmatic on a continent with no home-grown private sector to speak of and a legacy of government intervention and cronyism.
The irony of discussing the African experience of structural adjustment in the cool luxury of the Sandton Hilton was not lost on the delegates.
More surprising was the vehemence with which they attacked their impotent governments rather than the bad boys from the fund, which has become a punching bag of late, blamed for exacerbating, rather than alleviating, the Asian crisis with its tight fiscal demands.
Those same policies have been applied over here but with few obvious benefits. As Korea’s Kim is discovering, it’s hard to convince the people that job cuts and tight budgets will pay off some time in the distant future.
What they want now is focus: on infrastructure spending, efficient services and markets. Otherwise we risk being left behind when the next litter of tigers grows up.