THE Jakarta Post on June 21, 2007 make a report “10 years after crisis, recovery is uneven; SKorea cruises, RI falls behind”. Actually the real date is generally considered to have started on July 2, 1997, with the devaluation of the Thai baht (see Paul Krugman “International Economics”). In 1997 to 1998, several Asian nations –including Korea Indonesia and Thailand (KIT) Malaysia, Philippines, and Singapore- experienced a sudden reversal of international capital flows. During the preceding few years, these nations, as the favorites of international investors, had attracted large inflows of money, allowing them to import considerably more than they exported. But confidence in these economies collapsed in 1997; foreign banks that had been lending heavily to Asian companies now demanded that the loans be repaid, stock market investors began selling off their holdings, and many domestic residents also began shifting funds overseas.
Ten years ago, a plunge in the Thai baht sparked a wave of recessions across Asia's high-flying economies, bankrupting entire nations, putting millions out of work and shaking markets around the world. Some feared that a decade of growth would be lost. Today, the region as a whole has bounced back from the 1997-98 crisis and is better equipped to deal with financial emergencies. Banking is more transparent, corporations are better managed, poverty rates have dropped and the region's collective economic growth has doubled. Still, the recovery has been uneven. The three countries hit hardest by the crisis that began July 2, 1997 –we focus on KIT- have charted sharply divergent paths over the last 10 years, reflecting their differing responses to the crisis and policies since then. South Korea, which received a humiliating US$58 billion bailout arranged by the International Monetary Fund, quickly cleaned up its banking system and started reforming its heavily indebted family-owned conglomerates. The economy shrank and the jobless rate soared, but by 1999 it was robustly growing again. The crisis, while painful, forced South Korea to make changes that paved the way for more stable long-term growth. Today, it is one of Asia's powerhouses, led by Samsung Electronics Co. - the world's biggest memory chip maker - and Hyundai Motor Co. Indonesia, however, continues to struggle. The crisis helped bring about the downfall of former president Soeharto and greater political freedom, but the economy remains beset by rampant corruption, a weak legal system and lackluster foreign investment. Economic growth has been ticking along at about 5.5 percent the last two years, but unemployment is rising. Thailand hovers somewhere in between. Bangkok, where hundreds of skyscrapers froze in mid-construction when the crisis erupted, now has an elevated Skytrain, a subway, a brand new airport anddozens of glitzy malls. Japanese investment has made Thailand a major auto and electronics exporting hub. But a rise in the baht and political uncertainty caused by a tainted election in 2006 and military coup last September has been a drag on growth.
Ten years ago, a plunge in the Thai baht sparked a wave of recessions across Asia's high-flying economies, bankrupting entire nations, putting millions out of work and shaking markets around the world. Some feared that a decade of growth would be lost. Today, the region as a whole has bounced back from the 1997-98 crisis and is better equipped to deal with financial emergencies. Banking is more transparent, corporations are better managed, poverty rates have dropped and the region's collective economic growth has doubled. Still, the recovery has been uneven. The three countries hit hardest by the crisis that began July 2, 1997 –we focus on KIT- have charted sharply divergent paths over the last 10 years, reflecting their differing responses to the crisis and policies since then. South Korea, which received a humiliating US$58 billion bailout arranged by the International Monetary Fund, quickly cleaned up its banking system and started reforming its heavily indebted family-owned conglomerates. The economy shrank and the jobless rate soared, but by 1999 it was robustly growing again. The crisis, while painful, forced South Korea to make changes that paved the way for more stable long-term growth. Today, it is one of Asia's powerhouses, led by Samsung Electronics Co. - the world's biggest memory chip maker - and Hyundai Motor Co. Indonesia, however, continues to struggle. The crisis helped bring about the downfall of former president Soeharto and greater political freedom, but the economy remains beset by rampant corruption, a weak legal system and lackluster foreign investment. Economic growth has been ticking along at about 5.5 percent the last two years, but unemployment is rising. Thailand hovers somewhere in between. Bangkok, where hundreds of skyscrapers froze in mid-construction when the crisis erupted, now has an elevated Skytrain, a subway, a brand new airport anddozens of glitzy malls. Japanese investment has made Thailand a major auto and electronics exporting hub. But a rise in the baht and political uncertainty caused by a tainted election in 2006 and military coup last September has been a drag on growth.
WE simply note that whatever the reasons investors first blew hot, then cold, on Asian economies, in effect these economies went quickly from receiving large inward transfers to making large outward transfers. If John Maynard Keynes's presumption about the effects of transfers were right, this reversal of fortune should have produced a noticeable deterioration of Asian terms of trade, exacerbating what was already a severe economic blow.
In fact, some observers worried that with so many countries in crisis at the same time and all trying to export more simultaneously, their terms of trade would drastically deteriorate, making the crisis that much worse.
As it turned out, however, the terms of trade of developing countries in Asia did not worsen nearly as much as feared. Export prices fell sharply: in 1998 developing countries in Asia exported the same volume of goods as they had in 1997, but the dollar value of their exports dropped 8 percent. However, import prices also fell.
What seems to have saved Asia from a severe transfer problem was that other things were happening at the same time. Oil prices fell sharply, benefiting all the crisis countries except Indonesia. Japan, the leading exporter to the region, also saw its export prices fall as the yen plunged against the U.S. dollar. So there probably was a transfer problem for Asia, but its effects were masked by other forces. Paul Krugman the economist who wrote about the "The Myth of East Asian Miracle" stressed on the ‘bad’-debt that making worse off the economy.
In particular, different observers place very different interpretations on the role of government policies, including trade policy, in fostering economic growth. To some observers the success of Asian economies demonstrates the virtues of relatively free trade and a hands-off government policy; to others it demonstrates the effectiveness of sophisticated government intervention; and there are some economists who believe that trade and industrial policy made little difference either way.
During the crisis, between KIT and all crisis country, worst of all was the case of Indonesia, where economic crisis and political instability reinforced each other in a deadly spiral, all made much worse by a collapse of confidence by domestic residents in the nation's banks. By the summer of 1998 the Indonesian rupiah had lost 85 percent of its original value, and few if any major companies were solvent. The Indonesian population was faced with mass unemployment, and in some cases with inability to afford even basic foodstuffs. Ethnic violence broke out.
Now ten years after crisis: How with Indonesia?
As the world's fourth most populous state, the most populous nation of Muslims with a secular constitution and now the second largest democracy outside the West, Indonesia should naturally loom large in the global imagination. This country controlled by President Susilo Bambang Yudhoyono, the first directly elected President of Indonesia.
The recent story of Indonesia is remarkable. Clearly, Indonesia went through seven lean years between 1997 and 2004. The prospects looked so grim that many respected academic analysts predicted gloom and doom. Two Australian scholars, Paul Dibb and Peter Prince, warned in 2001 that "The regional base for ethnic and economic jealousies in Indonesia lends substance to fears of a national breakdown along the lines of Yugoslavia or the former Soviet Union." An American-based scholar, Rajan Menon, issued a similar warning: "Indonesia is staggering like a heavyweight boxer who has absorbed too many blows in too many places. A faltering economy, a fractious and feeble central government, communal war and secessionism could culminate in the state's collapse and the country's fragmentation."
But Indonesia did not collapse. Instead, it showed remarkable resilience and strength by bouncing back to hold remarkably peaceful elections in 2004, defying all predictions. This success was obvious. Less noted was the resolve of the Indonesian people in the seven lean years. Traditionally, economic collapse is followed by social unrest and mass migration overseas. And Indonesia did experience a serious economic downturn. As the World Bank noted: "No country in recent history, let alone one the size of Indonesia, has ever suffered such a dramatic reversal of fortune."
Yet, Indonesians did not leave their country, not even the ethnic minorities. This is remarkable. Philippines' per capita income is higher than Indonesia's but in per capita terms, its emigration is far higher. All this demonstrate that the Indonesians' sense of nationhood is strong.
Yuni Andono Achmad is alumniae from SMA Negeri 1 Karanganyar, Surakarta. SMA 1 Karanganyar. Smansakra.
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