19 Feb 1999
US now admits it pushed Asia too fast By Anthony Rowley
I
WAS left speechless by an article that appeared a few days ago in The New York Times. In it, former senior officials in the Clinton administration indulged in a kind of collective mea culpa about the often ruthless way in which the US has pursued its agenda of prising open financial markets in Asia and elsewhere.
I didn't know whether to be appalled by the gall of former key US policymakers in blithely admitting their errors, as though these were mere ideological bagatelles, or to be delighted that they had finally seen the error of their ways. Equally, it was astonishing that an august organ of capitalism (The New York Times) should have been the medium for their confessions.
I would imagine that many people in crisis-hit Asian economies who read the article had a similar reaction. Since the crisis erupted in 1997, we have been told it was largely Asia's own fault -- for not having proper regulatory and supervisory systems; for pursuing misguided currency and financial policies; for not being "transparent" enough in its business dealings; and for being generally corrupt and inept.
Now, finally, it is being admitted that the fault was not all on Asia's side. For the benefit of those who did not read the confessions of the perpetrators of what I will call "the great global liberalisation scam", I will reproduce a few of them here (with due acknowledgement to NYT). Readers may then draw their own conclusions about why so many developing and "transition" economies have been plunged into crisis lately.
Former trade representative and commerce secretary Mickey Kantor, who will be long remembered for his abrasive style, admits, according to the report, that the US was insufficiently aware of the chaos that rapid financial liberalisation could provoke in emerging markets. "It would be a legitimate criticism to say that we should have been more nuanced, more foresighted that this could happen," he was quoted as saying. Mr Kantor likened the risks of financial liberalisation in the absence of modern banking and financial systems as being like "building a skyscraper with no foundations".
Quite so, but what kind of "architect" is it who designs such an edifice -- or at least encourages markets to build it? Mr Kantor and his colleagues were not alone in this failing, however.
A senior IMF official suggested to this correspondent a few years ago that only by permitting capital to flow freely into emerging markets could the weak points in their systems be detected and then remedied. As I have commented before, if you connect a massive new water main to a primitive rural irrigation system, you are likely to get total inundation, not a controlled leak-testing process.
Laura Tyson, former chairman of President Clinton's Council of Economic Advisors and head of the National Economic Council, admitted that markets were prised open because "our financial services industry wanted in to these markets". She acknowledged a tendency on the Clinton administration's part to "do this as a blanket approach, regardless of the size or (state of) development of a country".
Jeffrey Garten, a former senior Commerce Department official and now dean of the Yale School of Management, acknowledges the collective guilt of the Clinton administration in promoting over-rapid financial liberalisation. "We were convinced we were moving with the stream and that our job was to make it move faster," he said. "It's easy to see in retrospect that we probably pushed too far, too fast. We overshot and, in retrospect, there was a certain degree of arrogance."
Breathtaking. All that is needed now is for US Treasury Secretary Robert Rubin and his deputy Lawrence Summers (followed by the managing director of the IMF and the president of the World Bank) to step up and make their confessions and the mea culpa will be almost complete.
If President Clinton stands indicted for anything, it is for failing to exercise greater wisdom and financial statesmanship and allowing all this to happen, rather than for his personal peccadillos. It matters for more profound reasons than the collapse of Asian currencies and stock markets that ensued in the immediate aftermath of the crisis. Currencies and asset prices are capable of fairly rapid recovery, as events have since proved, but the damage to "real" economies is much greater and longer lasting.
A recent and insightful study by Japan's Institute of Developing Economies observed that it is the "worsening" (not improving) conditions in East Asian economies that is behind improved balance of payments statistics, falling interest rates and other symptoms of apparent financial stability.
The "liberation philosophy" of the US administration and its Bretton Woods creatures is unlikely to be remembered any more kindly in Russia or in Latin America than in Asia, once the long-lasting adverse impact of over-rapid financial liberalisation and market opening comes to be appreciated fully. Nor is it likely that the disciples of this New Economic Order will be honoured by history.
The writer is BT's Tokyo correspondent