The Body Economic (30 page)

Chapter 3: From Miracle to Mirage

1
. W. Bello, S. Cunningham, K. Poh Li,
A Siamese Tragedy: Development and Disintegration in Modern Thailand
(Oakland, 1999).

2
. World Bank. May 1996.
Managing Capital Flows in East Asia.
Available at:
http://elibrary.worldbank.org/content/book/9780821335291
; World Bank, GDP Growth annual%. Available at:
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=3

3
. World Bank. 1993. The
East Asian Miracle: Economic Growth and Public Policy
. World Bank Policy Research Reports.

4
. M. Brauchli, “Speak No Evil: Why the World Bank Failed to Anticipate Indonesia's Deep Crisis,”
Wall Street Journal
, July 14, 1998. Available at:
http://www.library.ohiou.edu/indopubs/1998/07/14/0013.html
. In September 1997, just a few months before the crash, the World Bank showed a remarkable lack of foresight. Their report praised Indonesia: “Indonesia has achieved a remarkable economic development success over the past decade and is considered to be among the best performing East Asian economies. Indonesia has made great strides in diversifying its economy and promoting a competitive private sector through sound macro-economic management, increased deregulation and deeper investment in infrastructure services.” N. Bullard, W. Bello, K. Malhotra, “Taming the Tigers: The IMF and the Asian Crisis,”
Third World Quarterly
19:505–55. Available at:
http://focusweb.org/node/358

5
. Paul Krugman. 1994. “The Myth of Asia's Miracle,”
Foreign Affairs
v73(6): 62–78. Available at:
http://www.ft.com/intl/cms/b8268ffe-7572-11db-aea1-0000779e2340.pdf
; Pietro Masina,
Rethinking Development in East Asia: From Illusory Miracle to Economic Crisis
(London, 2001).

6
. Brauchli, “Speak No Evil.” See also T. Ito, “Asian Currency Crisis and the International Monetary Fund, 10 Years Later: Overview.” Available at:
http://www.researchgate.net/publication/4720855_Asian_Currency_Crisis_and_the_ International_Monetary_Fund_10_Years_Later_Overview
. Currency exchange data available at Index Mundi:
http://www.indexmundi.com/xrates/graph.aspx?c1=IDR&c2=USD&days=5650
; Stephen Radelet and Jeffrey Sachs, “The Onset of the East Asian Financial Crisis,” NBER, August 1998. Available at:
http://online.sfsu.edu/jgmoss/PDF/635_pdf/No_29_Radelet_Sachs.pdf
; Iskandar Simorangkir, “Determinants of Bank Runs in Indonesia,”
Bulletin of Monetary, Economics and Banking,
July 2011. Available at:
http://www.bi.go.id/NR/rdonlyres/59B51C7D-140E-405E-A67C-5ADBD2108CAE/25291/IskandarSimorangkir.pdf
; Stanley Fischer, “Lessons from East Asia and the Pacific Rim,”
Brookings Papers on Economic Activity
2:1999. Available at:
http://www.brookings.edu/~/media/Projects/BPEA/1996%202/1996b_bpea_fischer.PDF
; Bello, et al.,
A Siamese Tragedy;
Brauchli, “Speak No Evil.”

7
. I. Fisher, “The Debt-Deflation Theory of Great Depressions.” Available at:
http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf
. Economist Irving Fisher described debt-deflation spirals in the Great Depression: “Unless some counteracting cause comes along to prevent the fall in the price level, such a depression as that of 1929–33 (namely when the more the debtors pay the more they owe) tends to continue, going deeper, in a vicious spiral, for many years. There is then no tendency of the boat to stop tipping until it has capsized. Ultimately, of course, but only after almost universal bankruptcy, the indebtedness must cease to grow greater and begin to grow less. Then comes recovery and a tendency for a new boom-depression sequence. This is the so-called ‘natural' way out of a depression, via needless and cruel bankruptcy, unemployment, and starvation.” International Labour Organization, “ILO Meeting Highlights Asia Jobs Challenge,” 1999. Available at:
http://www.ilo.org/asia/info//files/19/89/73/f198973/public/pr/WCMS_BK_PR_1_EN/lang–en/index.htm
. See also Milken Institute, “Indonesia: Current Economic Conditions,” Asia and the Pacific Rim, March 10, 1999. C. Peter Timmer, “Food Security in Indonesia: Current Challenges and the Long-Run Outlook,” Center for Global Development, Nov 2004. Available at:
http://www.cgdev.org/files/2740_file_WP_48_Food_security_in_Indonesia.pdf
; Report from CARE. 1998. El Niño in 1997–1998: Impacts and CARE's Response. Available at:
http://reliefweb.int/report/world/el-ni%C3%B1o-1997–1998-impacts-and-cares-response
. This rise corresponded to about 33 million people being pushed into poverty. See D. Suryadarma and S. Sumarto. 2011. “Survey of Recent Developments.”
Bulletin of Indonesian Economic Studies
v47(2): 155–81. Available at:
http://www.danielsuryadarma.com/pdf/bies11.pdf

8
. Jemma Purdey,
Anti-Chinese Violence in Indonesia, 1996–1999
(Honolulu, 2006). Volunteers for Humanity documented 168 rapes in Jakarta, Solo, Medan, Palembang, and Surabaya. Of those raped, at least twenty died during or after the trauma. Cited in G. Wandita, “The Tears Have Not Stopped, the Violence Has Not Ended: Political Upheaval, Ethnicity and Violence Against Women in Indonesia,”
Gender & Development
v6(3): 34–41. The US government estimates there were sixty-six confirmed rapes. See US Department of State Report: Indonesia Country Report on Human Rights Practices for 1998. Available at:
http://www.state.gov/www/global/human_rights/1998_hrp_report/indonesi.html
. For further discussion, see J. Purdey, “Problematizing the
Place of Victims in Reformasi Indonesia: A Contested Truth About the May 1998 Violence,”
Asian Survey
v42(4): 605–22; Purdey,
Anti-Chinese Violence in Indonesia.

9
. The economist Robert Wade summarized the situation this way: “Explanations are about the only thing not in short supply in the Asian crisis.” See also IMF, Articles of Agreement of the International Monetary Fund, 1944. Available at:
http://www.imf.org/external/pubs/ft/aa/index.htm

10
. John Williamson, “What Washington Means by Policy Reform,” in John Williamson (ed.),
Latin American Readjustment: How Much Has Happened
(Washington, DC, 1989). Available at:
http://www.iie.com/publications/papers/paper.cfm?researchid=486
. The IMF recommended these actions to the East Asian countries, but went further to put even more stringent conditions on its loans, calling for the immediate closure of banks to stem capital flowing out of the country, and setting up standards for how much money banks should keep in order to limit risk-taking, reduce credit, and prevent borrowing.

11
. As the deputy managing director of the IMF, Stanley Fischer, explained in July 1998, “The real issue is how rapidly the underlying structural problems in the financial and corporate sectors are dealt with. The faster that is done, the shorter the period of pain, and the sooner the return to growth.” Stiglitz noted that this one-size-fits-all policy was so commonly applied that some economists forgot that the ‘find and replace' feature in Microsoft Word sometimes missed country names. He said: “I heard stories of one unfortunate incident when team members copied large parts of the text for one country's report and transferred them wholesale to another. They might have gotten away with it, except the ‘search and replace' function on the word processor didn't work properly, leaving the original country's name in a few places. Oops.” “For Sensitive and Sensible Economics,” in V. Anantha-Nageswaran (ed.),
Global Financial Markets: Issues and Perspectives
(India: ICFAI Press, 2002), p. 11.

Ha-Joon Chang argues the opposite: that the Tigers got rich by doing the opposite of what was advised; protecting markets so that infant industries in technology could grow up and compete on global markets before liberalizing.

12
. Critics also raised concerns about precisely whom the IMF was helping. “It was the rich who benefited from the boom,” said Khun Bunjan, a community leader from the slums of Khon Kaen in northeast Thailand. “But we, the poor, pay the price of the crisis. Even our limited access to schools and health is now beginning to disappear. We fear for our children's future.” See C. M. Robb, “Can the Poor Influence Policy? Participatory Poverty Assessments in the Developing World,” World Bank, 1999.

But why should governments make deep structural reforms and cut budgets when the causes of the crisis were short-term and temporary? The region didn't need massive budget cuts or tight monetary policy, but more government investment and increasing the money supply to offset the fall in foreign loans. After all, these East Asian countries did not have significant debt problems before the crisis, and had previously run budget
surpluses. Several economists argued that since excessive government spending was not the cause of the crisis, it didn't make sense to focus on cutting spending to fix the problem; in fact, since panicky and speculative transactions in the markets had caused the crisis in the first place, deregulating such transactions didn't seem likely to produce stability. “The problem was not imprudent government, as in Latin America,” said Joseph Stiglitz, “the problem was an imprudent private sector—all those bankers and borrowers, for instance, who'd gambled on the real estate bubble.”

13
. With most of the IMF loans going to the foreign bankers who had created the financial mess, criticism abounded. The East Asian countries had few options, however, but to agree with the IMF stipulations. Without the injection of IMF funds, it would have been difficult for any of them to get enough money to cope with the immediate crisis. To make its plan enticing, the IMF mobilized its largest-ever loan—$110 billion from the US and other rich country members of the Fund. R. P. Buckley, S. M. Fitzgerald. 2004. “An Assessment of Malaysia's Response to the IMF During the Asian Economic Crisis,”
Singapore Journal of Legal Studies
, pp. 96–116. Available at:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1020508

Other reasons for Malaysia's “No” to the IMF were related to its history, in the 1980s, of banking crisis when regulations were put in place to limit foreign borrowing. The result was that Malaysia was less exposed to a rise in the value of foreign debt when its currency, the ringgit, dropped in value. J. K. Sundaram. 2006. “Pathways Through Financial Crisis: Malaysia,”
Global Governance
v12:489–505. Available at:
http://www.globaleconomicgovernance.org/wp-content/uploads/sundaram-pathways_malayisa.pdf

It has also been argued that in Indonesia, President Suharto's family network played a role in the decision to accept help from the IMF, as much of the money was kept in the country and not solely in Swiss bank accounts, unlike the political leadership of Malaysia at the time which reportedly held financing abroad. N. Jones and H. Marsden, “Assessing the Impacts of and Responses to the 1997–98 Asian Financial Crisis Through a Child Rights Lens,” UNICEF Social and Economic Policy Working Paper, 2010. Available at:
http://www2.unicef.org/socialpolicy/files/Assessing_the_Impacts_of_ the_97_98_Asian_Crisis.pdf

14
. Based on current GDP per capita in USD. World Bank World Development Indicators 2013 edition. Sundaram, “Pathways Through Financial Crisis.”

15
. G. P. Corning, “Managing the Asian Meltdown: The IMF and South Korea. Institute for the Study of Diplomacy.” Available at:
http://graduateinstitute.ch/webdav/site/political_science/shared/political_science/ 1849/southkorea&imf.pdf
; S. S. Chang, D. Gunnell, J. A. C. Sterne, et al. 2009. “Was the Economic Crisis 1997–1998 Responsible for Rising Suicide Rates in East/Southeast Asia? A Time-Trend Analysis for Japan, Hong Kong, South Korea, Taiwan, Singapore, and Thailand,”
Social Science & Medicine
v68:1322–31. Available at:
http://www.ncbi.nlm.nih.gov/pubmed/19200631
; rates had
been rising in South Korea prior to the crisis, but began to accelerate coinciding with the market crash.

Ministry of Public Health Thailand. Thailand Health profile 1999–2000. Accessed Jan 29, 2004. Available at:
www.moph.go.th/ops/thealth44/indexeng.htm
. Cited in S. Hopkins. 2006. “Economic Stability and Health Status: Evidence from East Asia Before and After the 1990s Economic Crisis,”
Health Policy
v75:347–57.

16
. AusAID, “Impact of the Asian Financial Crisis on Health: Indonesia, Thailand, the Philippines, Vietnam, Lao PDR, 2000.” Accessed Feb 12, 2004. Available at:
http://www. usaid.gov.au/publications/pubout.cfm?Id=4105 1515 1662 2276 2647&Type=

J. Knowles, E. Pernia, M. Racelis,
Social Consequences of the Financial Crisis in East Asia
(Manila: Asian Development Bank, 1999); P. Gottret, et al., “Protecting Pro-Poor Health Services During Financial Crises: Lessons from Experience,” World Bank, 2009. Health and Nutrition Program. Available at:
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&ved=0CEcQFjAC&url=http%3A%2F%2Fsiteresources.worldbank.org%2FINTHSD%2FResources%2F376278-1202320704235%2FProtProPoorHealthServFin.doc&ei=MHX4UNHhDaWViAK7hYCICw&usg= AFQjCNFWm3rlVyeIDnoEVERsAfb1CMEvAg&sig2=rPmVK71IY3Z_Yi1o7s8MWw&bvm=bv.41248874,d.cGE
; Child Rights International Network,
Harnessing Globalisation for Children: A Report to UNICEF
, 2002. Available at:
http://www.crin.org/resources/infoDetail.asp?ID=2918

17
. “Indonesia Unrest Growing Despite IMF Bailout.”
Albion Monitor News
, Jakarta, Indonesia. Available at:
http://www.monitor.net/monitor/9801a/jakartaunrest.html