Asia-Pacific, Economy & Trade, Financial Crisis, Global Governance, Headlines | Analysis

ECONOMY: 'Financial Meltdown Decolonising Asian Minds'

Analysis by Kalinga Seneviratne

SINGAPORE, Dec 31 2008 (IPS) - The year 2008 may well go down in history as a watershed in which the global financial crisis, precipitated by the collapse of Western economic models, ‘decolonised’ Asians minds, say observers.

"In the past, Asian governments expected Western counterparts to be role models of good governance,’’ observed well-known Singaporean diplomat and author Kishore Mahbubani in a recent commentary published in London’s ‘Financial Times.’

Pointing to how major United States and European financial institutions have fallen like packs of cards, due mainly to the failure of financial regulators in their respective countries, Mahbubani argues that Asian governments’ belief in good governance and regulation may serve as a real asset in the storm.

"The gold standard that the West assumed it had in the field of regulation has vanished," Mahbubani points out. "Asians realise that they must forge their own standards.’’

An increasing number of Asian economists and commentators have pointed out in recent weeks how U.S. and European governments are doing exactly the opposite of what they had advised Asian governments to do during the 1997 Asian financial crisis.

Asian governments are now quietly building a new financial architecture in the region that will not be dictated to by the West.

Yung Chul Park, professor of economics at Korea University in Seoul, in a recent interview with the ‘New York Times’ pointed out that when the International Monetary Fund (IMF) pledged 20 billion US dollars to South Korea during the Asian financial crisis in 1998, one of the conditions it imposed was that the Korean government allow ailing banks and other companies to collapse rather than bail them out.

"Washington is following a different script this time," he noted. "I understand why they do it [but] they’ve lost credibility to some extent in pushing for opening up overseas markets to foreign competition and liberalising economies."

Mahbubani agrees that the U.S. and European policy makers are doing the opposite to what they advised Asia to do in 1997-98. "Millions of Indonesians and Thais would have been better off if their governments had been permitted to do what western governments are doing now," he argues, adding that "an apology from the West to Asia would not be inappropriate".

Asian media has not lost sight of the fact that Asian governments are quietly moving to increase regional cooperation and tighten up government regulation with respect to financial industries.

These governments are also moving ahead towards a possible Asian Monetary Fund, which was quickly shot down by the West when Japan mooted the idea in the late 1990s. But, this time, without calling it such, moves are already in motion towards this goal.

In mid-December, China, Japan and Korea met in Fukuoka for the first time exclusively to discuss a new financial partnership to make Asia the centre of global trade and economic vitality.

The three financial powerhouses agreed unanimously that Asia should continue to be the engine of growth to counter the global economic crisis, not by opening up markets for global investors, but, by reviving their economies with infrastructure projects and bolstering domestic demand.

‘The Nation’ newspaper in Thailand in an editorial on Dec. 22 hailed this move as "an important commitment" by the three Asian giants which would "help the overall integration of the East Asian economy," known as ASEAN plus three.

Hadi Soesastro, executive director of the Jakarta-based Centre for Strategic and International Studies, pointing out that East Asian nations have accumulated close to four trillion dollars in reserves, argues that the time has come to set up a regional fund independent of Western control.

Writing in the ‘Jakarta Post,’ Soesastro notes that to make such a fund operational it would need some political decisions which would address issues such as the size of the fund, conditionalities of lending and regional surveillance mechanisms for the fund to function effectively.

Ajay Chhibber, director of the U.N. Development Programme’s regional Bureau for Asia and Pacific, agrees that Asia needs to build on the currency swap arrangements put into place during the peak of the Asian financial crisis a decade ago.

In addition, says Chhibber, there should be greater coordination in the region to increase intra-Asia trade, and also strengthen programmes to help the poorest and neediest.

In a commentary in the ‘Business Week,’ Chibber welcomed China’s 580 million dollar economic stimulation package as a good move and Singapore’s blanket guarantees on deposits which has led to Malaysia following suit.

If India can also encourage the already strong domestic demand, he believes that inter-Asian trade could help to boost the economies of countries such as Bangladesh, Cambodia, Nepal, Sri Lanka, Pakistan and Vietnam, which are heavily dependent on western markets.

Even China may quietly move to demand changes to the IMF. Fan Gang, professor of economics at Peking University, believes that China is now in a position to increase its voice on a long-standing concern of theirs – the U.S. dollar’s status as global reserve currency. He says that China would like to see an amendment to IMF’s mandate so that they could "discipline America’s money supply and debt accumulation".

Thus, though not making a big noise in the international scene yet, Asian countries and their policymakers are slowly but surely decolonising their minds of the idea that economic expertise comes purely from the West.

"If Asian countries can work together, the region can not only deal with the financial tsunami, but lay the ground for a powerful future, one in which greater coordination prepares the path for the eagerly awaited Asian century," predicts Chhibber.