INDONESIA, PHILIPPINES & VIETNAM WERE FAMED TO BE FOLLOWING THE JAPANESE GROWTH PATH... THEY TOOK THE COMPARISON TOO SERIOUSLY WE GUESS. BY VIRAT BAHRI
Looking for vulnerable economies post the devastating global crisis of 2008? You can safely look forward to pay dirt in Southeast Asia. Memories of the 1997 crisis, and how the group of 6 – Indonesia, Malaysia, Philippines, Thailand & South Korea – suffered in its wake – are still fresh in the minds of people. Before 1997, these were the new beacons of capitalism and free markets. Within two years, they became the most embarrassing symbols of what could go terribly wrong with the ‘American way’.
Structural weaknesses in these economies remain, particularly with their financial systems; and with what Nobel Prize winning economist Paul Krugman had referred to as the myth of the East Asian miracle. He made the argument prior to the East Asian crisis, when he said that their growth was growth in factor productivity (labour and capital) and not led by technical innovation. Thanks to the seasonal nature of rice farming, the people of these countries quickly adapted to assembly line manufacturing, but the services and distribution sectors remained weak. This was aptly illustrated in Indonesia, for instance, where there were some 850 banks before the 1997-98 crisis and 800 collapsed during the crisis! And as China became a fiercely competitive manufacturing giant, these economies saw themselves in trouble; also because they had developed little expertise in trading and financial services.
With respect to the current situation, three economies from Southeast Asia qualify as the red flag economies – Indonesia, Philippines and Vietnam. Prof. Edward Lincoln, Clinical Professor of Economics, NYU Stern, does point out that these economies “have come through the current recession with positive economic growth.” But the internal risks are still on a high pedestal.
Looking for vulnerable economies post the devastating global crisis of 2008? You can safely look forward to pay dirt in Southeast Asia. Memories of the 1997 crisis, and how the group of 6 – Indonesia, Malaysia, Philippines, Thailand & South Korea – suffered in its wake – are still fresh in the minds of people. Before 1997, these were the new beacons of capitalism and free markets. Within two years, they became the most embarrassing symbols of what could go terribly wrong with the ‘American way’.
Structural weaknesses in these economies remain, particularly with their financial systems; and with what Nobel Prize winning economist Paul Krugman had referred to as the myth of the East Asian miracle. He made the argument prior to the East Asian crisis, when he said that their growth was growth in factor productivity (labour and capital) and not led by technical innovation. Thanks to the seasonal nature of rice farming, the people of these countries quickly adapted to assembly line manufacturing, but the services and distribution sectors remained weak. This was aptly illustrated in Indonesia, for instance, where there were some 850 banks before the 1997-98 crisis and 800 collapsed during the crisis! And as China became a fiercely competitive manufacturing giant, these economies saw themselves in trouble; also because they had developed little expertise in trading and financial services.
With respect to the current situation, three economies from Southeast Asia qualify as the red flag economies – Indonesia, Philippines and Vietnam. Prof. Edward Lincoln, Clinical Professor of Economics, NYU Stern, does point out that these economies “have come through the current recession with positive economic growth.” But the internal risks are still on a high pedestal.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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