Critical lessons

By Fatemah Farag

Between 1990-1995, these economies were catapulted into world status, setting a standard that other South countries aspired to. However, the dream was brutally shattered when severe financial and monetary crises swept across Southeast Asia.

The picture painted during the various sessions of the summit was that of devastation. Indonesian President Suharto pointed out candidly in his statement that "the crisis has wiped out a large part of the gains of three decades of painstaking pursuit of national development."

Malaysian Prime Minister Mahathir Mohamad drew a vivid picture of the waste. "Over one trillion dollars of purchasing power has been lost, banks and businesses of all kinds have been bankrupted, more than 30 million workers have been made unemployed, food and medicine are less available and growth has either been reversed or stunted, he said." The Malaysian currency has been devalued by 50 per cent and stock market capitalisation has lost more than $200 billion dollars.

This comes after an impressive growth rate of eight per cent annually for almost a decade in Malaysia and equally impressive growth rates in Indonesia for two decades.

Suharto painted a stark picture. He told G-15 members that the financial crisis has "persisted with no indication that it would soon abate." Concerns over the crash in Southeast Asia go beyond the G-15 borders. There are fears that the crisis could extend to Japan and China. The economies of the two countries are weighed down in debt and an economic crisis would automatically send a shock-wave throughout the whole international system. Even 'stable' economies such as that of the United States could suffer.

Although President Hosni Mubarak expressed optimism that African economies that have undergone stabilisation programmes will reap rewards, he was careful to address in detail the important lessons to be learned from the Asian "passing pause." These included better communication on both the South-South and North-South planes, gradual liberalisation of markets, with an emphasis on the development of national institutions, as well as the need for appropriate regulatory and supervisory standards.

In a special document on the crisis presented to the leaders of the conference, the Malaysian delegation called for "a comprehensive review of the present architecture of the international monetary system."

The document listed speculative currency deals, vulnerable economies, loss of investor confidence, serious flaws in market mechanisms and inadequate risk assessment by international lenders, as reasons for the Asian crisis.

Special emphasis was also given to the role played by the IMF, calling on the international institution to change its terms and conditions for financial support. This would entail the US providing more funds, a move opposed by Congress.

To-date, the IMF has given a total of $118 billion to Indonesia, South Korea and Thailand. Malaysia refused assistance, saying the conditions were too harsh -- a message that Suharto sought to drive home in his official statement. "We must make painful sacrifices and summon our reserves of endurance and social discipline" to overcome the crisis, he said.

In general, G-15 leaders seemed to agree on the necessity that all international forums work towards the alleviation of the adverse consequences of the crisis as well as ensure that the benefits of development are shared in a balanced and equitable manner by all countries. Within this framework, increased South-South trade relations were encouraged by all.

Businessmen included in the delegations seem to be on track, but some of them pointed to difficulties or, at best, the need for innovation in dealing with the present situation. Said Usha Saha, vice chairman of India's Modicop telecommunications company, "I think that our economy was able to manage because they realised the limits beyond which they could not go and they did not out-borrow themselves."

However, Indian business still suffered. "We were especially affected by the fact that goods became much cheaper in these countries and we were forced to compete with their very low prices," Saha said. He added that "the kind of globalisation we are heading for means we can never really avert what happens in other countries and we, as businessmen, have to adjust."

Saha said that not only had the prices of consumer products dropped but also the prices of raw materials, raising the possibility of relocating certain industries to take advantage of cheaper labour and materials.

Some exporters were forced to search for other markets. "We were all hit quite hard. Even the man in an Egyptian village could feel the effect," said one exporter at the fair who has worked extensively in the Malaysian market. "Today I am searching for options in Europe," he added.

Others have found roundabout ways to deal with the problem. "We use the barter system with countries like Malaysia which are crucial to our exports," said Mohamed Afifi of the National Organisation for Military Industries. "This allows us to get around some of the problems which these countries are facing without jeopardising our interests."

Husin Bagis, commercial attaché at the Indonesian Embassy, said that exports soared by 10 per cent in the past year. Is that a good thing? According to Bagis, the volume of sales has outweighed the negative effects of low prices.