Asian alternative to IMF policies

Michael Pollak mpollak at
Tue Sep 8 20:44:45 PDT 1998

I thought this editorial from the International Herald Tribune was germane to some of today's discussions. (By the way, the editorial page at the IHT is surprisingly robust these days -- much more interesting than those of its mothership papers.)

Paris, Wednesday, September 9, 1998

It's One World, Ready or Not? But Some Are Not


By Marshall Auerback and Patrick Smith International Herald Tribune


NORFOLK, Connecticut - In the months and years hence, these past weeks

will be better understood for what they are: the point at which

globalism lost its place as the world economy's unassailable logic.

Globalism's fall from grace is a step toward a more diverse community

of nations that is no longer so inclined to look West-ward for


The Russians' economic and political messes have brought financial

markets to calamity's edge, but Russia is in no position to challenge

anybody. At this point, all Moscow wants is help from any direction.

No, those first to confront the primacy of neoliberal capitalism are

the East Asians. They, too, have been in crisis. But they have now

arrived at economic policies entirely at odds with those proposed by

the U.S. Treasury and the IMF, which have long led the globalization


The world took little notice in December when Mahathir bin Mohamad,

Malaysia's prime minister, convened a summit of Asian leaders in Kuala

Lumpur. Most Western analysts pictured Mr. Mahathir as the

neighborhood xenophobe and dismissed his anti-Western rhetoric as a


It was partly that, but more attention should have been paid to the

Kuala Lumpur summit. East Asians have ever since nodded politely

toward the West with no serious intention of carrying out the IMF's

socially destructive, no-pain-no-gain solutions to their currency and

debt crises.

Some banks will close and some corporations will merge; jobs will be

lost and debt will be repackaged and sold. But from Tokyo to Jakarta,

the clear intent is to stimulate the region out of recession while

avoiding structural changes that the IMF has long deemed essential.

''I am an outdated Keynesian,'' Kiichi Miyazawa declared on the day

after he was named Japan's finance minister in July. He soon added

that he favored ''economic recovery, not reform.''

These are more than policy statements; they reflect strategy as much

as tactics. At issue are not just the next quarter's economic results

but preservation of an economic model that has advanced the region at

a rate and for a duration with no parallels in history.

This is the context in which Malaysia's imposition of capital controls

last week should be viewed. Wall Street and the State Department are

reportedly shocked that Mr. Mahathir has taken this step. They should

be. We now have the first live case study of an alternative to the

Anglo-American model, which ranks unfettered capital flows among its

signature features.

Malaysia's new policy has prompted unqualified objections in Western

financial capitals. Currency controls will produce a fatal loss of

confidence, it is said, and Western funds that have stayed the course

in Malaysia will flee.

Whatever happened to history? With few exceptions, capital controls

were in place across the region during the Cold War years - the Asian

''miracle'' era - and they never impeded investment. China, South

Korea and Taiwan still maintain controls. As to capital flight, the

Kuala Lumpur market's grim numbers suggest that supposedly loyal,

long-term funds left town a long while ago.

Understood properly, capital controls are intended to limit inflows,

not outflows. Mr. Mahathir has concluded that large amounts of

short-term capital from abroad are too disruptive of a system based on

high savings rates and high levels of corporate debt.

Condemned in the West, Malaysia's turn inward has summoned an eloquent

silence from the rest of East Asia. If Malaysians succeed in

rekindling growth, as they have a good chance of doing, it will be one

more signal that Anglo-American capitalism will have to take its place

as one alternative among others. We will eventually count division of

the world into discrete economic blocs among globalism's lasting


Many in the West have viewed Asia and other regions not as complex

societies but as markets ruled by market logic alone. Asian leaders

are perfectly positioned to deliver a correction here. They may fall

short as principled democrats, but their economic success is

intimately tied to the social cohesion that globalism challenges.

It is well understood across the Pacific that globalization caused the

Asian crisis and cannot logically be its cure. Some in the West have

been confident for years that globalism is inevitable. It isn't. One

world, ready or not? ''Not'' is the clear response.

Mr. Auerback is a partner in Veneroso Associates, a global strategic

consulting firm. Mr. Smith is author of ''Japan: A Reinterpretation.''

They contributed this comment to the International Herald Tribune.


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