Jonathan Watts in Seoul
Asian policymakers have moved closer towards accepting the need for improved social safety nets in the wake of a financial crisis that has worsened regional inequality and shaken the belief that economic development alone can alleviate poverty.
At a forum in Seoul last week, finance ministers and leading economists from Apec – the world’s largest regional economic grouping – patted themselves on the back for Asia’s stunning turnaround, but there was a widespread recognition that the post- crisis climate will not allow business as usual.
The Asian Pacific Economic Community (Apec) gathering was initiated by South Korean President Kim Dae-jung to discuss the lessons of the 1997/98 financial crisis and how to minimise the impact of a recurrence. South Korea has led the way in Asia’s recovery. Last year, its economy jumped out of recession with growth of 10,7%, compared to -5,8% in 1998. The Seoul stock market recently hit record highs and its foreign exchange reserves are now at $80-billion, compared to $3,9-billion when the crisis hit.
The other Tiger economies – Thailand, Malaysia, Singapore and, to a lesser extent, Indonesia – have also turned Tigger by bouncing back quicker than expected, but many economists at the forum warned that the “Asian miracle” of uninterrupted growth has been superseded by a more painful era of conventional boom-and-bust capitalism. However, delegates were divided on both the causes of and the best remedies for the crisis.
The prevailing view in Asia is that the instability was sparked by ruthless international speculators and exacerbated by the clumsy response of the International Monetary Fund (IMF) and the World Bank. To tackle this, Asian nations have proposed the establishment of a regional monetary fund – a call that was supported by last year’s Nobel economic laureate Robert Mundell. But this is unlikely to be realised because the United States has repeatedly shot down possible challenges to the influence of the IMF.
The momentum for reform of Asia’s economies has also slowed as the sense of crisis has ebbed. Banks remain saddled with huge non-performing loans and the restructuring of unprofitable conglomerates has slowed. But there was more agreement on the importance of minimising the social impact of economic downturns. Although Asia is out of crisis, unemployment remains high in most countries, and the gap between the rich and poor is growing.
Earlier this year, Kim introduced South Korea’s most advanced welfare policy with legal guarantees on basic living conditions, education and medical care, as well as increased state resources for the retraining and re-employment of the workforce. He proposed the regional adoption of this “productive welfare” system which emphasises the development of human resources – a departure from Asia’s long-standing focus on infrastructure projects and European-style support of living standards for the needy.
He also suggested the creation of an Apec social safety net that would help countries hit by earthquakes, floods and other natural disasters with a pool of funds from governments and private companies.