The Downsizing of Asia

The Downsizing of Asia

The Downsizing of Asia

The Downsizing of Asia


Francois Godement argues that the Asian miracle has not come to an end, but rather the Asian economies have reached a crisis of maturity. He explains the reasons behind the recent financial crisis and provides a broad ranging survey of the region's economies since 1993, examining factors such as demography, Asian values, cronyism, industrial groupings and the wane of political authority.

Despite widespread pessimism, the main components of healthy commercial growth for the region remain intact. Godement makes it clear that improved self-regulation and discipline within the financial sector will prove crucial if East Asia is to realize its full potential.


A crash course in history

Great financial crises, like major political revolutions, lend themselves to two major undertakings: scapegoating, and looking for the root of the trouble. The first pursuit is an understandable reaction in the face of such change: somebody must be responsible. The search for culprits -speculators, the West, the Asian model or Asian debtors themselves -is only too tempting. The second pursuit is akin to asking whether the French Revolution started on 14 July 1789 because the price of bread reached a high on that day, or whether it happened because the French monarchy could not cope with the crisis in fiscal revenue or with the Enlightenment. Like revolution, financial mayhem is a major historical event. In the post-Cold War era, and particularly in East Asia, where geoeconomy has largely displaced geopolitics as the major agent of change, a financial collapse is history in the making.

A crisis of transition

The closest that one can get to the cause of the 1997 to 1998 Asian economic crisis ('the Crash') is that Asian economic models met their fate when they embarked upon a course of international trade and financial liberalization that followed the Western model. Most Asian countries (with the important exceptions of Hong Kong and Singapore, which are very special enclaves) failed to set up adequate regulation and supervision that would have allowed capital markets to develop without dangerous imbalances. Overwhelmed by capital inflows from the world's industrialized economies (and first and foremost from Japan), they overborrowed, overinvested and overreached themselves, until confidence snapped like a taut wire. What happened next is now well known. Net private capital inflows to Malaysia, the Philippines, South Korea and Thailand reached 93 billion dollars in 1996. But by 1997, the movement had reversed, with an outflow of 12 billion dollars.

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