<HTML> <HEADER> <META HTTP-EQUIV="Content-Type" CONTENT="text/html; charset=windows-1252"> <META NAME="Generator" CONTENT="Microsoft Word 97"> </HEADER> <HEAD> <TITLE>RETHINKING ASIA - December 31, 1998</TITLE> <SCRIPT LANGUAGE=JavaScript>  </SCRIPT> </HEAD> <BODY bgcolor=#ffffff> <center><table width=400> <tr><td align=center><img src="../image/top_rethinking.gif"> <tr><td><center>Caveat Investors</center> <hr> <CENTER>By Walden Bello</CENTER> <hr> <center>December 31, 1998</center> <A HREF="javascript:go()" onMouseOver="window.status='';return true" onMouseOut="window.status='';return true"> <IMG SRC="../image/yahoo.gif" border=0 ALT="Yahoo! in Asia"></A>  L ike the question "Who lost China?" in the United States during the 1950s, the issue of who or what was responsible for the Asian financial crisis will long be a matter of intense debate. Lack of transparency and other elements of the brew known as "crony capitalism" is the answer from the IMF and the U.S. Treasury. But if we are to believe U.S. Treasury Undersecretary Larry Summers's homilies on how government-business collusion allegedly suffocates dynamism by discouraging market forces, it would be hard to understand why South Korea or Japan was able to take off in the first place. Closer to the mark are those who argue that speculative investors, particularly hedge funds, triggered the collapse. The swing in the flow of foreign capital into the region by $100 billion between 1996 and 1997 was devastating for financial systems that were still in an early stage of development. Transparency had little to do with the volatile movements of capital. As Summers's boss, U.S. Treasury Secretary Robert Rubin, now admits: "So often we found [investors] had engaged in relatively little analysis and relatively little weighing of the risks." What this explanation misses, though, is that these speculative forces and banks operated in a hothouse atmosphere with other critical actors. A key player was the business press. Business publications and wire services proliferated in the region beginning in the mid-1980s. These news agents became critical interpreters of the news in Asia to investors all over the world and served as a vital supplement to the electronic linkages that made real-time transactions possible among the key stock exchanges of Singapore, Hong Kong, Tokyo, Osaka, New York, London and Frankfurt. For the most part, these media highlighted the boom, glorified the high growth rates, and reported uncritically on so-called success stories. Many of these publications, in turn, developed an unwholesome reliance on the investment adviser or strategist--an "expert" connected with the research arms of banks, investment houses and other financial institutions. Interestingly enough, many of these people were expatriates, some refugees from the late-1980s stockmarket collapses in New York and London. Some were Generation X or pre-Gen X types too young to have participated in the junk-bond frenzy in Wall Street in the Reagan years but who soon discovered similar highs in the East. Their advice on going underweight or overweight in certain countries, taking short or long positions in dollars or moving into equities and out of bonds and vice versa was dispensed to readers by reporters as gospel truth. This isn't to say that all of them gave uniformly optimistic advice. It did mean, however, that they couldn't afford to paint too pessimistic a picture of any country in the region, since their bread and butter came from bringing global capital into Asia. But to lay the blame only on the business press and investment advisers for the creation of an atmosphere of inflated expectations wouldn't be fair. Indeed, it was economists and political scientists in the West who were primarily responsible for the idea of the "Asian miracle." There was a remarkable consensus between the Left and the Right in academe that Asian growth was exceptional--though for diametrically opposite reasons. The Right, obsessed with Hong Kong and Singapore, insisted that it was because of free markets; the Left, enamoured of South Korea and Taiwan, because of the role of the interventionist state. In the early 1990s, the World Bank stepped in to serve as arbiter between Left and Right interpretations and found merit on both sides of the argument. What is particularly significant is that the bank declared that the Asian tigers had the economic fundamentals right and were thus geared to enter a period of even greater prosperity. Its 1993 book The East Asian Miracle became a kind of bible, not only in the academic world but in financial and corporate circles, and the rush into Asia of speculative capital in the next few years must have been at least partly tied to its thesis of Asian exceptionalism. In short, a global network of investors, journalists, investment analysts and academics was locked into a psychology of boom, where growth rates, expectations, analysis, advice and reporting interacted in a mutually reinforcing inflationary fashion. What has crashed in the last few months has not only been Asia's economies but the Asian miracle establishment. Lessons for the future? Above all, be sceptical--for example, of those who dispense "false dawn" advice based on rises in stockmarket indices or the strengthening of regional currencies. And beware of those giving advice based on superficial notions, such as investing in Asian stocks and bonds on the strength of a "regional recovery"; those talking about formulating new development models; and those making projections of Asia's future that don't consider the coming fury of social and political strife of the next few years. Walden Bello is professor of sociology and public administration at the University of the Philippines and co-director of Focus on the Global South, a programme of the Chulalongkorn University Social Research Institute. </table></center> <center><table width=450 cellspacing=0 cellpadding=0><center> <tr><th valign=bottom> <a href="../index.html" target="_top"><IMG SRC="../image/buttom_home.gif" border=0 ></a> <a href="http://www.feer.com/feer/owa/country.contents" target="mains"><IMG SRC="../image/buttom_country.gif" border=0></a> <a href="http://www.feer.com/feer/owa/industry.contents" target="mains"><IMG SRC="../image/buttom_industry.gif" border=0></a> <a href="../contents.html" target="sub_body"><IMG SRC="../image/buttom_issue.gif" border=0></a> <a href="http://www.djmarkets.com.hk/htmls/webhk/djtelerate.html" target="mains"><IMG SRC="../image/buttom_stories.gif" border=0></a> <a href="../r.html"><IMG SRC="../image/buttom_r.gif" border=0></a> <a href="../bestweb_hk.html"><IMG SRC="../image/buttom_website.gif" border=0></a> <a href="../books.html"><IMG SRC="../image/buttom_service.gif" border=0></a> <a href="../air.html"><IMG SRC="../image/buttom_air.gif" border=0></a> <a href="http://www.feer.com/feer/owa/article.srharti"><IMG SRC="../image/buttom_archive.gif" border=0></a> <a href="../feedback_form.html" target="sub_body"><IMG SRC="../image/buttom_back.gif" border=0></a> <a href="../98oct_29/where.html"><IMG SRC="../image/buttom_where.gif" border=0></a> </table> </center>  </BODY> </HTML>