So, I’m feeling young again — well, middle-aged, anyway. The rupiah is plunging again! I was one of those economists for whom the Asian crisis of 1997-1998 came as a disturbing revelation, a demonstration that events all too reminiscent of the Great Depression could still happen in the modern world.
Between the acute crises in Southeast Asia and the long stagnation in Japan, it was — or so I thought — all too clear that we did not, in fact, have this thing under control. Unfortunately, not enough people grasped that lesson, and a decade later we had a global crisis that made the Asian crisis look trivial by comparison.
But anyway, the moving finger of crisis seems for the moment to be pointing back at some of the old crowd. And I’m catching up on what’s been going on in that part of the world.
The first thing you want to say is that all the crisis economies — even Indonesia, which had by far the worst time in the beginning — eventually bounced back strongly:
This is in stark contrast to the experience of the countries that seem like the closest parallel to SE Asia this time around, the troubled euro area debtors. Here’s a comparison of Indonesia after 1997 and Greece after 2007, with the later years for Greece being the current IMF projections; the number of years after the pre-crisis peak is on the horizontal axis:
By this point in the aftermath of the Asian crisis, even Indonesia was well on the road to recovery; Greece, Spain etc. are still sinking.
What’s worth remembering is that everything people say about why Greece can’t bounce back — structural problems, corruption, weak leadership, yada yada was also said about Indonesia. So why could Indonesia come back while Greece can’t?
Well, two obvious reasons: Indonesia had a currency that it could devalue, and did, massively. This caused a lot of short-term financial stress, but paved the way for export-led growth. And the IMF, after initially pushing austerity policies in Asia, backed off and reversed course; this time around the Troika has been relentless, learning nothing from experience.
Much more on this topic in future posts.
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