Comments: Turning Crisis into Opportunity

1
Comments Turning Crisis into Opportunity

• Frank Harrigan
• Economics and Research Department
• Asian Development Bank

2
Scope

• East Asian Growth Model
• Crisis
• Response to the Crisis
• Recovery
• Renewal
• Conclusions

3
General Observations

• Good structure
• Context set out clearly
• Narrative is about right, easy on the eye
• Takes a point of view, as it must
• But,
• Too much on crisis, not much on opportunities
• Balance between generalization and nuance tilted
  to former
• Whats the focus? Country, regional or thematic?
• Whats the new Asian model? As yet, not clear.
• Are models what we should be looking for?

4
East Asian Model?

• As a general point, East Asia is variously
  classified as 5, 11 or 12 countries (including
  Japan), which is a bit confusing
• Generalization versus nuance
• No single strategy, but common principles,
  favorable demography, prodigious investment,
  neighborhood effects and uniquely successful
  outcomes
• How did priorities differ, what sequences were
  followed
• Insufficient attention to political and
  institutional elements that support sustained
  fast growth
• Institutional arrangements and checks and
  balances that built investor trust in governments
• Public goods provision, information and
  coordination failures, and the interface between
  the public and private sector is not really
  considered
• mechanisms that fostered policy consistency and
  pragmatism and kept government from becoming
  predatory

5
Crisis, post-mortem

• Helpful to develop a typology of ideas?
• Rational panic a bad equilibrium leading from
  unstable dynamics (bank runs, adjustment of risk
  appetite), but triggered by what?
• Fundamentals, despite emerging stresses this is
  de-emphasized in chapter
• Tensions between economic and institutional
  backwardness, and sustained fast economic catch
  up

6
Responses

• Almost inevitably responses to crisis cannot be
  optimal causes ill understood in a fog of
  uncertainty
• IMF lessons worth citing
• Political factors underplayed volatility and
  policy U-turns in some countries (Malaysia and
  Indonesia) heel dragging on reform in others
  (Thailand)
• Yet lessons need to be distilled and understood,
• Counterexamples would be useful, but do they
  exist? Malaysia barely gets a mention in this
  draft

7
Recovery

• Analysis should proceed on a country by country
  basis and be tied to political, policy and
  institutional responses
• Tone is quite upbeat. But crisis costs seem large
  and it took up to 7 years to recover 1996 income
  peaks.
• Might comparison with crisis episodes from
  elsewhere be helpful?

8
Renewal

• This is still clearly work in progress
• For frontline crisis countries, other than Korea
  which is already prosperous, renewal is a goal
  not yet a reality
• Country differentiation again
• Deeply embedded (institutional) problems in
  Indonesia and Philippines
• Middle income trap in Malaysia and Thailand?

9
Miscellaneous

• Discussion of regionalism does not always square
  with data
• Origins of regionalism and evaluation not really
  tackled
• Bilateralism is a peculiar component of
  regionalism given its discriminatory nature
• Most of regional trade (79) is still driven by
  final demand outside developing Asia (12 by
  Japan)
• The question of what to do with reserves is
  trickythey are not free assets unless from
  windfalls
• Roubinis claim about the wrong lessons and new
  risks are exaggerated, but will probably need
  some airtime