uncertainty over the "true" extent of foreign debt that will need to be rolled over in Asia now, and the weakness of Japan's economy which limits the role that Japan can play in this region.
However, serious steps have been taken particularly in three countries, the so-called KIT, namely Korea, Indonesia, and Thailand. Remember we used to talk about MBA group in Latin America, Mexico, Brazil, Argentina. Now we have KIT in Asia. Responses to the IMF bailout packages and conditions have varied in three countries. Thailand took decisive action, including the closure of 56 finance companies and the government took over four banks. Korea has responded strongly. The Korean economy appears somewhat more confident in view of the recent success of Korean negotiators in getting international creditor banks to roll over $24 billion a couple of months ago in short-term debt beyond the IMF bailout packages of $60 billion. While our friend, Indonesia, was unconvincing in its response to the first IMF agreement, President Suharto took personal involvement in the tough conditions and the second package has more creditability. However, more recently, President Suharto is contemplating on the issue of currency board as a means of shoring up the rupiah and reviving confidence in the Indonesian beleaguered economy. The issue is very controversial and more political than economic.
So I think full-blown recessions in 1998 are therefore likely to occur in countries where currencies have fallen the most, namely Indonesia, Thailand, and Korea. Countries whose currencies have not devaluated sharply, namely China, Taiwan, Singapore, and to some extent India are likely to pose lower though respectable economic growth. This is ironic because those countries whose currencies are not fully convertible are sill slow. Those who are fully subscribed to globalization are hurt.
The situation is still unclear as to whether anything can be done to restore confidence and stability in Asia today. Many Asian leaders are still nervously watching several potential triggers for renewed turmoil in Asia, especially if China devaluates her yuan. This could touch off a new round of devaluation that would hit worldwide. Asian leaders are also concerned at the failure so far by Japan to address its economic and financial problems since Japan is still Asia's engine of economic growth and the largest creditor in Asia. To sum up, the full-speed-ahead opening of markets around the world portrayed by the U.S., WTO and others have been downside. So I wonder whether Asia should take a time out from globalization for now.
Second point, the IMF and its bailout role in Asia needs to be supplemented by "regional facility" and "market-based" bailout programs. As I said earlier, one of the major caused of financial meltdown in Asia was the enormous block of fast-moving capital in and out. At the moment the IMF does not have enough resources to stem such capital outflows when they occur in the new global marketplace. The IMF's functions are very important and necessary, though. But if one was to design an institution like the IMF to fulfill its current role, the role today would need to be structured differently, with a lot more financial and human resources at its disposal. I have many friends there. They told me the IMF now is exhausted and floundering in search of a role in the 21st century. The IMF's international rescue packages totaling well over $100 billion already for Thailand, Indonesia, and Korea initially did very little to restore market confidence or stop outflows of capital. These Korean-Indonesian-Thai bailout packages place unprecedented pressures on the IMF, leaving the IMF with less liquidity now, maybe more lead should leave the IMF themselves, should doubt the IMF's liquidity at present. The IMF resources are now stretched very thin. This will limit the IMF's ability to deal with future crises, if that happens in China or India. Just imagine that the IMF has no more resources. The IMF has a definite role to play, to provide international liquidity for those who need to take the blame for the policies that will have to be imposed, therefore providing some political shelter to the governments that impose them. Use the IMF as a front. This is very true in the case of the current Asian bailout packages. However, I think the IMF with some justification is accused of being a doctor of one medicine, "austerity", that is administered to whatever disease you have. Basically high interest rates and government budget surpluses are imposed on the economy to force savings rates up, slow down growth rates, and reduce imports to force the balance of trade back into balance. This is typical medicine. Others include immediate bank closure and the IMF only asks for increase of capital adequacy. All these added both to bankruptcy panic in Indonesia and the rest, to contracted forces of the financial crisis in the three countries, Korea, Thailand and Indonesia. As a result, it creates creditor panic, bank ranks and sovereign downgrade of the three countries and puts the country near debt like before.
Many critics from Asian and Western countries often stated
