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Journalism of Courage
As the Congress tries to launch another Amma, the BJP to reinvent Hindutva and others to present a united front, the economy is a tiny blip on their radars. By March, even if India8217;s trade and investment prospects are no worse than now, East Asia8217;s troubles and what they mean for this country are sure to dominate all discussion. The impact on the rupee and Indian exports are part of the challenge to Indian policy-making. A larger part will be drawing appropriate conclusions from the responses of the US government, IMF and international finance and business to what is emerging in East Asia.The collapse of Asian financial markets is to economic policy-makers what the fall of the Berlin Wall was to foreign policy specialists. It unsettles the map, shakes many certitudes and overturns many easy assumptions. No one can predict where it will lead, how far it will spread, how best to limit the damage or who will pay for mistakes. All one can be sure of is the Asian drama will continue for years and in its course change the global economic outlook profoundly.
Those political leaders who have mentioned East Asia have tried to be comforting. Atal Behari Vajpayee, for instance, agrees vaguely there are implications to be studied and P. Chidambaram expresses confidence that the Asian tigers will bounce back. Apart from some anxious noises in the Commerce Ministry, it is as if no one really wants to acknowledge that India can be seriously touched by what is happening in Japan, South Korea and Indonesia. In the midst of an election the political class has determinedly turned its back on a financial meltdown for which a confusing array of theories are being offered. East Asian politicians, doing much the same, were saying there was no need to panic all the way to bankruptcies.
Some of the rethinking is bound to leak into Indian policy-making which found inspiration, to an extent many would be reluctant now to admit, from international drum-beating on East Asia8217;s economic boom. Whether the damage there gets worse or not over the next few weeks, it is sure to revive the domestic debate about how far and how fast the economy should be opened up. There were those who said get your fundamentals right and you have nothing to worry about only to find that their South Korean model did indeed manage to have low fiscal deficits, a globally competitive export industry, hugely successful multinational corporations and a highly skilled workforce but is nevertheless floundering. So domestic reformers are going to find it hard to cite East Asia or toprevent the pendulum swinging too far in the other direction. In short, the broad political consensus on economic reform will be threatened.
One current theory is that it is essentially a crisis of unregulated banking and too much short-term dollar-designated debt in the private sector.
Asset-liability mismatches and bad loans could be disguised during a period of rapid growth but the whole unravelled very fast once banks and companies were found out. The million-dollar question is why in this age of global communications and sophisticated risk-analysis they were not found out sooner. One sacrilegious answer is, international financial markets are notoriously inefficient in assessing risk and allocating capital. Another suggests that when the smell of money turns even the best people mad, there is little anyone can do about it. A third says international bankers always knew the truth but played poker; the trick lies in knowing when to get out or making sure the IMF bails you out. Into which category do the World Bank and international credit rating agencies fall seeing that they were cheering right up to the edge of the precipice?
Systemic reformers are out in full cry. Many investment bankers, it turns out, did not think nepotism and corruption and the absence of liberal democracy were bad for business. They were simply local factors to come to terms with. It is said, Philip Tose, chairman of Peregrine, the largest independent bank in Hong Kong which has now collapsed, actually preferred doing business in countries like Indonesia with weak democratic systems. India8217;s rambunctious democracy he considered very troublesome.
But when crony capitalism is blamed the term is often used to include not only the practice of friends of politicians running monopolies but also the so-called Asian-style partnerships between industry, banks and the government, an arrangement which underpinned East Asia8217;s miraculous growth rates for over a decade and lifted its population out of poverty. So the sub-text in some systemic change arguments should be read as advocacy for the hard-nosed American model of growth.
When India8217;s political leaders wake abruptly to the fallibility of the market and the volatility of its gurus8217; prescriptions, they will find themselves in a wilderness without roads or signposts.
