The Independent on Sunday
                                                     11 January 1997
Tigers' critics foresaw crisis 

East Asia's economic collapse has provoked grim satisfaction among the 'miracle' doubters. By Raymond Whitaker 

THE leading opposition figure in Indonesia, the latest focus of the economic turmoil in east Asia, yesterday called for President Suharto to go, and said she might stand for the presidency herself. 

Megawati Sukarnoputri, daughter of the man Mr Suharto deposed 32 years ago, is normally much more cautious in criticising the regime. Her outspoken comments yesterday, unthinkable even three weeks ago, show the depth of the crisis in the region. But as currencies and stock markets collapse in one east Asian country after another, one small group of people can be forgiven for feeling a certain grim satisfaction. 

The explosive growth of the "tiger economies" during the 1990s persuaded many politicians, academics and commentators that a new age was dawning, a Pacific Century in which the West would have to learn "Asian values" to keep up. Before becoming Prime Minister, Tony Blair visited Singapore and praised aspects of its social welfare system (while saying nothing about its human rights record). Some, drawing a straight line into the future, predicted that China would be the world's biggest economy within a couple of decades. 

Gerald Segal was among the lonely sceptics who questioned the existence of an "Asian miracle". The director of a research programme launched by Britain's Economic and Social Research Council (ESRC) to discover the secrets of east Asia's success, he argued that the region's rapid rise was hardly surprising, given the huge sums being invested. What he and a few others questioned was whether the money was being wisely spent, and in particular whether genuine productivity gains were being achieved. 

These doubts are fast becoming the new orthodoxy as a sea of bad debts engulfs the region and Asian economies queue up for help from the International Monetary Fund. So where are Dr Segal's opponents now? "Some of them still say the fundamentals are right, and that the problems are temporary," he said. "But they are wrong: this has set east Asia back a generation. 

"If you look at what happened to Latin American countries in the early 1980s, it has taken them 15 years to get back on track, partly because of their stubborn belief that the setbacks were not their fault. You can see the same mistakes being made in east Asia - the Indonesian government has just drawn up a budget which makes hopelessly unrealistic assumptions." 

As for the danger of Britain and other Western economies being singed by the Asian meltdown, so far Dr Segal is sanguine. "The real surprise is just how little south-east Asia - even South Korea, which is as large as the rest put together - has affected us. Average growth among members of the Organisation for Economic Co-operation and Development will be down less than half of 1 per cent this year. We can live with that. 

"China and Hong Kong are under severe pressure at the moment, and the crisis may delay much-needed reforms. The best guess is that they will avoid a crash now, at the expense of greater problems later. 

"It will be a different matter if the Japanese economy is pulled down, and we have do whatever it takes to avoid that. As long as Japan holds, the rest of the world can breathe easily." 

Far from throwing the research programme off course, Dr Segal said most of the 19 ESRC studies, carried out over several years at a cost of more than £2m, had identified the problems which led to the present crisis. They had confirmed the view of a leading sceptic, the American economist Paul Krugman, that much of the region's investment had been unproductive and politically motivated. 

"It was crony capitalism," said Dr Segal. "It is not just a liquidity problem, and if you pump in more liquidity to cure it, you will simply be giving a drunk more alcohol. Asian economies have to take some pain now, or they will simply have a worse problem later." 

But poor management of resources was by no means the only reason for the difficulties of east Asian countries, he added. "Sustained economic growth requires fundamental political reform and a coherent foreign policy. There is a lack of transparency and pluralism at home, while internationally their response to the crisis has been completely unco-ordinated. What our studies show is that you can only go so far with an authoritarian system, and this is now clear in what is happening. Take Taiwan: it has a lot more political pluralism than most other east Asian countries, and it is riding out the storm a lot better." 



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