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ATT EDITORS: Please relate following item to 'TRADE: Asian Woes,
Fast Track Loom Over APEC Moved earlier from Vancouver.//
By Johanna Son
MANILA, Nov 17 (IPS) - South-east Asians, surveying the damage over the beating taken by their markets and economies in recent months, may well be looking at the ruins of the much-vaunted 'tiger' growth model, say financial analysts.
Such talk - if any - however is likely to be heard at the annual meetings of the Asia-Pacific Economic Cooperation (APEC), which starts this week in Vancouver, which is scheduled to speed- up trade and investment liberalisation from North America to Asia. Discussions at meetings of APEC Foreign Ministers and Heads of State also will be on the need for financial measures to address the currency and market instability that have been plaguing parts of Asia since July.
Japan is spearheading a proposal, endorsed by many South-east Asian countries, for the creation of an 'Asian monetary fund', a lending facility that economies hit by speculation and market volatility can turn to at short notice. Japan's interest is understandable, since its banks have lent more than 70 billion U.S. dollars to South-east Asia as of 1996.
The United States and the International Monetary Fund (IMF), however, say the fund could worsen currency problems and encourage irresponsible policies. IMF Managing Director Michel Camdessus says that Asian economies would be better served by a regional surveillance group rather than a regional fund in times of crisis.
In the wake of Asia's crisis of confidence, talk of solutions has mostly been confined to financial or monetary prescriptions. For instance, Fred Bergsten of the US-based Institute for International Economics and former head of APEC's eminent persons group, suggests that APEC leaders launch a new mechamism to address monetary crises.
''The proposed APEC mechanism would fill this critical gap in the present early warning system,'' he said. By doing so, APEC would encourage member economies to continue on the path of freeing trade and investment, in particular by liberalising financial sectors. But activists say the root of Asia's troubles lie in much more than just currency or monetary woes.
It is time to review the model that South-east Asia's aspiring 'tiger economies' have been following for decades, says Walden Bello of the Bangkok-based Focus on the Global South.
The crisis ''marks the unraveling of a model of development that brought a certain kind of success but also carried within it the seeds of its own downfall'', he said in a new report, 'Addicted to Capital: The Ten-Year High and Present-day Withdrawal Trauma of South-east Asia's Economies'.
''This model was one of high-speed growth fueled, not principally by domestic savings and investment, as in the case of Taiwan and Korea, the classical newly-industrialising countries, but mainly by huge infusions of foreign capital,'' he said. In other words, South-east Asia became complacent about its growth during its boom years and failed to spot the pitfalls of being ''addicted to (foreign) capital.''
From Thailand to Indonesia, economies boomed under a massive wave of Japanese foreign direct investment that came in the eighties in search of cheap manufacturing bases. South-east Asian nations got the funds they needed to sustain rapid growth and did their best to lure overseas money, including using attractive interest rates and pegged exchange rates. Impressed, banks began racing to lend money to these countries.
In the early 1990's, investment flows began to level off and other forms of private capital, like portfolio investments from mutual funds, came to developing Asia in search of higher profit yields. But unlike direct investment that is harder to pull out, portfolio capital is footloose and, as recent events have shown, easily spooked.
''The Asian crisis is akin to a bank run. Investors are lining up to be the first out of the region. Much of the panic is a self- feeding frenzy,'' said Jeffrey Sachs of the Harvard Institute for International Development and an economic adviser to several Asian governments.
Trouble began and spread as symptoms of larger economic problems showed. Through the years local banks were taking out cheap dollar loans and lending sometimes irresponsibly. A case in point is Thailand, 40 percent of whose foreign debt came from banks with little or no representative offices in the country.
Bello says money coming in to the newly rich economies often went not to productive sectors like manufacturing, which need large capital and longer gestation periods, but to speculative areas like property development. Meantime, Asia's export performance was in a slump and the foreign debt of countries like Thailand reached 89 billion debt - 80 percent of which was private debt and nearly half was short-term debt.
Current-account balances worsened not just in Thailand, but also in Malaysia and Indonesia. Yet over the years these countries' growth figures had remained healthy, glossing over structural problems.
Looking back, Bello said: ''When South-east Asia jumped on the global bandwagon, it should have prepared for the downs as well as the ups. Instead, many have allowed the region's spectacular economic growth to lull them into a false sense of invincibility and security.''
Still, Asia's problems can lead to some good. Already, Malaysian Prime Minister Mahathir Mohamad's attacks on currency speculation have triggered a study into how to tame the whims of the financial market.
Critics say South-east Asia would do well to look at fine- tuning its quest for economic tigerhood, or study models apart from one based on fast-track growth that is overly dependent on foreign capital, cheap labour and headlong integration into the global economy. The crisis ''opens up the space for people to once again alternative paths to development, to strategies whose consideration have been blocked by the hold on the popular imagination of the illusion of permanently high growth rates,'' Bello said.
Likewise, there is clearly a need to discourage what one World Bank official called ''rapid round trips of short-term money'' and speculative capital and currency hedging.
Activists are calling for another look at the Tobin tax, which would tax all cross-border flows of capital that are not direct investment. Others suggest requiring portfolio investors to put aside an amount from their funds that cannot be withdrawn for a certain period, to prevent hasty pullouts that can cause financial mayhem.
It is time South-east Asia learned the lessons of its past, became more choosy about where its money is coming from, and strengthened the domestic foundations of the Asian miracle. (END/IPS/ap-if-dv/js/ral/mk/97)
