By Mohammed Jehan Khan –
South East Asia has come a long way since the financial crisis crippled the region nearly two decades ago. Even after the region has recovered from the crisis, post-crisis economies are still running at around 2-6% less than in the two decades before the crisis. The crisis affected economies are still confronting complex reform challenges.
During the last three decades certain Asian nations like South Korea, Thailand, Taiwan, Hong Kong, Singapore, Indonesia and Malaysia had made such rapid progress year after year, which earned them the moniker ‘The Tiger Economies’. These three decades of their tremendous growth averaging 8% a year had inspired pride at home and envy abroad. Never before had any economy sustained such growth for so long. Economists believed that in a century or two, these Asian giants would lead ahead of the USA’s and Europe’s economies. South Asian economic policies were presented as a model to the developing South American and African countries.
This miraculous economic progress achieved by these Asian countries was called ‘The Asian Miracle’. The sudden setback that befell them is the anti-climax of this miracle and it is therefore rightly called the ‘Asian Crisis’.
Taking the case of Thailand, a country that had all the audacity to called itself an economic tiger, it was indeed a big come down. With the GDP growth averaging 7.2%-8% a year in the early 1990’s, the country was doing very well. Exports from the country were also at a healthy level and it was fast acquiring an enviable economic status. Then what went wrong?
The only mistake that the country had committed was similar to the mistakes that countries often make when they are flush with foreign capital. Instead of investing into industry or productive assets, Thailand spent it into high profile buildings in and around metropolitan Bangkok.
The government encouraged investments in steel mills although the country had neither iron nor coal. Instead of improving the quality of goods to compete with China and Japan, the foreign capital was largely spent on buying luxury sports cars and limos while the country’s infrastructure and education system was starved without proper funds. To escape poverty young girls from rural areas to prostitution as a mean of sustenance, which paved the way for Thailand to become a world famous and thriving sex industry.
It was during this time that hell broke out on July 2, 1997, in Thailand, where the Baht came under a speculative attack and the attempts of the government to save the currency crashed to the ground. Since then the plunging currencies and stock markets have put the economic miracle in the deep freeze and now the focus is on survival.
At its worst the Indonesian rupiah was more than 80% down against the dollar and the currencies of Thailand, South Korea and The Philippines have all plummeted by 35% to 50%. Till June 1997, nobody could ever think that the East Asian bubble would burst so suddenly.
How did all this happen? Some western economists argue that since the East Asian economic miracle was simply based on high investment rates it is inevitably bound to come against its own limitations. Others argue that since the East Asian economy was based on free trade policies, they had to face the evil effects of unhindered capital flows. Years of breathtaking growth attracted vast inflows of foreign capital in the 1990’s which led to ‘over-borrowing’ and ‘over-investments’, and rapid growth had all along concealed this structural weakness.
It was indeed a big storm that swept across South East Asia and the biggest head that rolled was that of President Suharto of Indonesia, who, having been just elected for the record seventh term, had to bow out of office in ignominy.
As of today, the US dollar is becoming stronger by the day and the stability of the Japanese yen, Indonesian Rupiah and Thai Baht are threatened and China is on the verge of devaluing its currency. The Sri Lankan rupee has crossed the Rs. 130/= mark in relation to the dollar and it is feared that it may sink further deep.
The most important lessons learnt from the South East Asian economic crisis is to keep our current account deficit, low inflation rate and high forex reserves in shape. Sri Lanka should use loans not for ostentatious spending, but strictly for improving productivity.
Instead of going for wasteful displays of wealth, Sri Lanka should use foreign capital judiciously as an aid to development. If we take a closer look at our economy with that of Thailand in the 90s, in Sri Lanka too, the rural areas and crucial sectors like education have been neglected.
At the same time, from 2009-2015 Sri Lanka has spent lavishly on non-productive assets. Political instability following the presidential election has added $104 Million to the list of unproductive expenditure (e.g. Lotus tower project). If such profligate behavior is not curbed immediately, the time is not far away when the country will find itself trapped in an economic crisis.
Ranil Wijeyesekera / March 19, 2015
The SAARC should unite. SAFTA or free trade between countries should be updated. Regional Productivity should be improved. Foriegn Direct Investment by India could use our infrastructure to make goods for the Indian market. Raw material not availabe in Sri Lanka where available could be imported from India by Indian firms. Free mobility of persernel would help in transfer of technology and improving labour productivity. The land laws must be liberelised to the provinces with new enactments to safeguard the rights of the minorities in Provinces and vital country needs. Bi lateral trade agreements are nesecary and duty changes should involve structural adjustment by SAARC fundes to compensate for losses and retraining of workmen and development in new sphers. A common currency and a common standard Institute and duty furtherfree import items are needed.
Garment FDI and use of material from India is needed to use or idle resources. Indian FDI and technology and knowledge of Markets is needed for improvement of Rubber products.
Prices in the West is controled by wholesealers and retailers keeping large margins. Common action of SAARC is needed to penetrayte the western markets.Explotatation by the west must stopped.
Peace between India and Parkistan is needed to reduce threat of nuclear war. This would help development in the SAARC region.
Vibhushana / March 19, 2015
Most of these stock exchanges these days are automated. Buy/Sell decisions are made and millions are traded in fractions of a second.
Even the casual traders have software that can respond to market events and sell stocks directly in the market.
Lets say one lone idiot over reacts to some negative news. An army of machines will follow suit without any hesitation. Economies that have lasted over decades can go bankrupt within a few seconds.
That is the reality unfortunately.
Maghribi / March 19, 2015
Sri Lankans have to identify their natural resources and develop it through a resource based economy. The main reason Sri Lanka suffers economically despite its resources, is the interest-based system that it deals with, costing Rs. 38 billion of interest payment per annum, works to to a large percentage of GDP. This means that the country cannot recover these affects even if it doubled its production. The usurious system and interest-based loans are able to destroy any economy, no matter its size, and this is exactly what strong economies like US and Europe suffer from. Islam firmly addressed the issue of usury; Islam not only prohibits usury, even more Allah and His Messenger waged war against the one who take it and the Qur’an described the one dealing in ‘riba’ interest like the one beaten by Satan into insanity,
“Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity” (The Noble Quran 2:275)