History takes us back to a time when respect for certain economic theories was more important than taking into account the diversity and complexity of reality. A time still not so distant, after all.
If we had to choose a date, it would be Saturday, which would mark the 25e anniversary of the Asian financial crisis. It was, in fact, on July 2, 1997 that Thailand surrendered to the advice of experts and resigned itself to abandoning its fixed exchange rate policy pegged to the American dollar, after months of trying to defend its currency. against attacks from large hedge funds. Far from calming down, the storm subsequently blew through the stock markets and weighed on the economy and employment. Indonesia would then be swept away by the wave, like Malaysia, South Korea, Hong Kong, the Philippines…
Being part of what was called “the Asian miracle”, all these countries had however until then everything to please, recall the authors of a voluminous work on the crisis published recently by the independent office of regional macroeconomic research and surveillance. (AMRO). Backed by a dizzying average economic growth of 8% per year, they applied the principles of sound management of public finances and the liberalization of financial markets prescribed by economic orthodoxy. If there had been a criticism to make of them, it would have been to be a little too popular with foreign investors and not sufficiently wary of the rapidly growing weight of indebtedness of their banks and their companies abroad. towards these strangers.
Having spotted this vulnerability and having already cut their teeth on Mexico and its peso a few years before, large hedge funds will bet heavily on the flight of foreign capital from these countries and the collapse of their currencies in order to buy them back later. cheaply. Suddenly caught with a drying up of their normal sources of financing, banks and companies will turn to their governments, which often will not be able to help them — even those whose finances have been sound until then — for lack of sufficient financial resources, but not only.
This is because the last resort aid provided by the International Monetary Fund (IMF) comes in exchange for austerity policies, the theory being that this was the best way to reassure and bring back foreign investors. Crises like these are good opportunities for countries to get their economies in order, it is said. The sooner we rip the bandage off, the sooner the economy will rebound.
But all this will only contribute to aggravate the situation. The Korean economy will contract by 5% in 1998, against 7% in Thailand and Malaysia and 13% in Indonesia. Ten years later, foreign investors had still not regained their former enthusiasm.
do as you please
If China has managed to get away with it better than the others, it is mainly because it opened its doors to them less and prevented them from escaping during the crisis. Malaysia has also had the good idea of flouting economic orthodoxy by maintaining “selective control” over the circulation of capital in order to have the fiscal and monetary resources necessary to support its banks and businesses.
As for Hong Kong, it first attracted the unanimous condemnation of the international community for having had the audacity to go and support its currency and its stock market even on the ground of speculators and their futures markets… Before We have to admit that the maneuver was largely successful.
The Asian crisis has forced its victims to make some necessary reforms, such as tightening their financial rules, noted in May the chief economist of AMRO, Hoe Ee Khor, in an interview with Finance and development. However, it also left “a feeling of helplessness and resentment” in people who “felt like the innocent victims of a crisis triggered by speculative attacks [et qui ont été] forced to swallow the so-called bitter medicine prescribed by the IMF and the international community while those responsible walked away unmolested”.
The countries in question also learned that they were not always obliged to follow to the letter what others told them to do, that one should be wary of the changing mood of foreign investors and that a kind A regional IMF would be useful for them so that they are not only dependent on the one based in Washington in the event of a problem.
All of these reforms and shifts in perspective partly explain why Asian economies fared relatively better than Western economies during the last major financial crisis, from 2007 to 2009, experts observe in the book. AMRO.
The new IMF
The IMF has also learned lessons from the Asian crisis, it is said. His reputation “came out seriously tarnished in Asia and in the rest of the world”, recalls one of them. We realized that he always arrived “with the same game plan and the same toolbox”, while “certain measures did not apply to the situation”. Its interventions in times of crisis have become “more realistic”, “better adapted to reality” and “more transparent”.
We now understand that even if reforms are necessary, it is not always a good idea to try to push them through in the middle of a crisis.
The IMF, however, took the time. Ten years after the Asian crisis, he repeated many of these same mistakes when he arrived at Greece’s bedside with his horse remedies.
It is true that, during the crisis of the COVID-19 pandemic, the IMF has shown itself to be less obsessed than before with a rapid return of governments to balanced budgets. We have also often heard him recommend that countries take account of their particular situation in the conduct of their economic affairs, and pay attention to human factors. We will now see if it lasts.