Stephen Roach: Asia's Take on Austerity
NEW HAVEN - The austerity debate was the topic du jour at this year's World Economic Forum in Davos. With good reason. Europe is slipping back into recession just when recovery in the United States is finally getting some traction. That has undermined the case for fiscal consolidation, which is so heavily favoured in Europe.
Yet I took away a different conclusion from Davos. I moderated a session on 'The New Context in East Asia,' addressed by a panel of senior representatives from Thailand, South Korea, Malaysia, Singapore, and Japan. With the exception of the Japanese participant, all had first-hand experience with the devastating Asian financial crisis of the late 1990's.
I couldn't resist the temptation to draw Asia into the debate between Europe and the US. Rather than ask the Asian panelists to theorise about the impact of austerity in the overly indebted developed West, I asked them to assess their own experiences during and after the crisis of the late 1990's.
Frankly, I was surprised by what I heard. The panelists agreed on two points: first, they initially detested the wrenching adjustment programs dictated by the terms of the International Monetary Fund's so-called conditional bailouts (the South Koreans still refer scornfully to the 'IMF crisis' of the late 1990's). Second - and here's where the surprise came - they all agreed that, with the benefit of hindsight, these excruciating adjustments were worth it, because their crisis-torn economies were forced to embrace structural reforms that paved the way for their spectacular economic performance today.