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72. The Asian Crisis Seen from Europe
- ISEAS–Yusof Ishak Institute
- Chapter
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358 Rolf J. Langhammer By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 72. THE ASIAN CRISIS SEEN FROM EUROPE ROLF J. LANGHAMMER Reprinted in abridged form from Rolf J. Langhammer, “The Asian Crisis Seen from Europe: Can Newly Emerging Europe Help Newly Declining Asia?”, in Regional Co-operation and Asian Recovery, edited by Peter Petri (Singapore: Institute of Southeast Asian Studies, 2000), pp. 164–83, by permission of the author and the publisher. EUROPE AND A JOINT PLAN OF ACTION FOR ASIA The crisis of Asian financial markets has been an exogenous shock to the AsiaEurope Meeting (ASEM). The meeting, with its various subsidiary conferences and forums, has been designed to cope with policy-induced economic and political impediments to bilateral transactions and to remove trade obstacles and investment barriers. Yet, it is fully unprepared to handle market-induced shocks such as those deriving from herd behaviour of commercial banks and private non-bank portfolio investors. ASEM may be able to stimulate inter-Europe–Asia transactions in trade and long-term real capital (foreign direct investment [FDI] as well as aid) but it has no great influence in private financial markets. It is true that indirectly a successful ASEM may contribute to improve confidence in investment conditions in Asia and induce investors to return to the region. In this respect a discontinuation of ASEM very likely would have adverse effects. Yet, ASEM cannot stem the tide if asset bubbles and disorder in domestic financial markets induce foreign and local investors to let the chips fall and escape the Asian markets. Simply, ASEM has neither the funds nor authority to stabilize the capital account. If it had funds available, they would have been marginal in quantitative terms. The size of private financial flows from Europe to developing Asia relative to developing Asia’s revenues from exports to Europe or relative to European public flows illustrates how much the former flows have bypassed the latter. According to Bank for International Settlements (BIS) data, at end 1992 lending of European banks to developing Asia amounted to US$54 billion compared to developing Asian exports to the European Union (EU) worth US$94 billion. At end 1996 lending of European banks to Asia had increased to US$155 billion vis-à-vis revenues from Asian exports to Europe amounting to about US$145 billion (BIS 072 AR Ch 72 22/9/03, 12:55 PM 358 The Asian Crisis Seen from Europe 359 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 1998; UN 1997). In contrast, official development assistance (net disbursement) of EU member states (OECD 1997) to Central, South, and other Asia amounted to about USS$6 billion in 1994/95 along a declining trend. Hence, with regard to European public flows to Asia, it is quantité négligeable. In brief, current account flows (including revenues from factor and non-factor services) rose much slower than capital account flows, or, in other words, globalization in the context of bilateral Europe– Asia economic relations has become a phenomenon of private financial markets. In spite of such differences in magnitude, Asian political leaders (for instance, Singapore ’s Prime Minister Goh Chok Tong) have called for a joint plan of action and invited Europe to play a prominent role. This chapter will first discuss the rationale behind this initiative which comes at a time when the EU is almost completely absorbed by its inner challenges, that is, Economic and Monetary Union, integration deepening and widening, budgetary problems, Common Agricultural Policy (CAP) and cohesion fund reforms, mass unemployment , social security financing, to mention just a few (section II). It will then dismiss hopes for effective support from “Public Europe” as a fallacy not only for political reasons but mainly for economic ones (section III). In spite of the fallacy, I see some possible lessons from European policy experiences worth discussing in relation to Asia (section IV) before some conclusions are drawn (section V). THE RATIONALE OF REQUESTING SUPPORT FROM EUROPE Is it rational to request support from a seemingly declining region which for a long time had been labelled by Asian political leaders as sclerotic, inflexible, discriminatory , and inward-looking while Asia had been celebrated as dynamic, outwardlooking , non-discriminatory, and the new centre of economic growth? Is it possible that undeniably dynamic Asia exceeded a sustainable speed of growth, given the institutional disorder in domestic financial markets and weaknesses in political accountability while...