By Marissa de Guzman and Walden Bello


If we rely on the news these days, we will get the impression that Asia is on the rebound and on the fast track to recovery. Experts say that the worst is definitely over. Almost every Asian country is registering positive or respectable growth rates thereby attracting foreign capital and investments once more. We have apparently gained foreign investors' confidence once again.

But amidst all the hurrah and cheers for a great recovery work, we have to wonder whether the professed upshot is reliable. Is this recovery real? Beyond the headlines, what is actually happening especially at the mass-base or at the grassroots level? Until the first half of this year, a lot of people were pleased with the growing strength generated by Asian countries in their trek towards recovery. But in the middle of September, the Thai baht spiraled again, bringing down with it other regional currencies. In the Philippines, the peso is back to its crisis-state of 41 to the US dollar. As a result, prices are still high thereby almost eliminating purchasing power for a great majority of the population. Poverty is still escalating as well as unemployment rates. Interest rates are low. Business is not doing all that well.

It makes us wonder then whether the professed recovery is real or merely sugar-coated news to pacify the burgeoning discontent of the masses. Despite the claim that tough times are over, that we have survived the crisis, we honestly do not feel better off.

This makes us wonder what recovery could actually mean. What does recovery entail? And if experts say we're on the road to recovery, what direction is that? What recovery measures are they referring to?


The Asian financial crisis was triggered by the spiraling of the Thai baht in July of 1997. That in turn was a result of massive speculation. But even before all these, I believe we could find a correlate between the 1997 crisis and the road taken by the new industrializing countries (NICs).

The NICs of the 1980s employed the export-oriented industrialization model. In the pursuit of economic prosperity, Asian economies like Korea, Singapore, and Taiwan joined the free trade bandwagon and chose the export market as the engine of their countries' growth. NIChood was characterized by high-speed growth to as high as double-digit percentages, manipulation of the state to keep interest rates high to be able to attract foreign investors, disregard for safety nets and capital controls.

At the time, there was this race to economic prosperity. Using Korea as an example, it went to the extent of pawning the environment and the labor force in exchange for ensured economic growth. Korea relied on long working hours, cheap labor, minimum investment in safe working conditions to keep labor affordable and thus making their goods competitive in the global market. In the interest of keeping foreign capital flowing into the country, Korea also neglected safety measures and in the process endangered its natural environment and natural resources, thus resulting in the degradation of the Korean environment.

Because export-oriented industrialization was the favored engine of development, Asian economies became dependent on foreign capital and external factors. Everything was structured to meet the demands of the foreign capitalists. Interest rates were manipulated to meet their needs. Capital controls were neglected as well as safety nets to allow more capital to come in. In the process, the domestic markets were left weak and unable to compete with the foreign goods. Foreign capital however, came in the form of hedge funds and portfolio investments which means that they were not stable and long lasting investments. Portfolio investments circle the globe and go where profits are more forthcoming. That is the danger with these funds. As soon as it sees greener pastures, it doesn't think twice about leaving one country and transferring to the another.

Simply put, that is what happened in 1997. Speculations made investor confidence wary and unstable. Portfolio investment fled the Asian economies and so this triggered the capsizing of the Asian economies. Imagine the domino effect. Once portfolio investment was lost, and as we have established that foreign capital is where Asian countries pinned their hopes for growth, prosperity and development, the Asian economies began to crumble. Not knowing what to do and not equipped with the measures to defend against these losses, the crisis became inevitable.


Two years after the height of the financial crisis, analysts and speculators feel that we've dug ourselves out of the hole we helped create in the first place. They see recovery at hand. But the road to recovery is a little hazy. First we must realize what specific kind of recovery these analysts are talking about. What are the components of this recovery that they claim we are undertaking?

"How do you measure recovery? Are you just looking for recovery in financial markets, the stability and strengthening of currencies and stock markets? But it's much more than that. We are looking for a broad-based, sustainable recovery. That means improvements as we go along. Not just increases in output, but other benefits that come with it: higher employment levels, eradication of poverty, reducing the prospects for social dislocation."1

Recovery in the form of a re-structuring of the fundamentals of the government and the economy means deep-seated changes at the core. These changes may prove to be painful in the short-term but will definitely deliver remarkable benefits in the long term. The issue always is: are we willing to take on the costs of a real re-structuring, a real journey towards recovery?


This financial crisis has spawned 1001 proposals for the reform of the global financial order. But beneath the plethora of technical details and differences, there are three basic approaches.

The first of these proposed alternatives suggests that there is basically nothing wrong with the current financial architecture. Primarily associated with Wall Street and Washington and the Group of Seven, the idea is that the system merely needs improvement with the 'wiring'. This cautious move calls for voluntary moves towards greater transparency by hedge funds and mutual funds. This further states that there is a need to further strengthen the role of the International Monetary Fund. In effect, this makes the IMF a lender of last resort to countries which are willing to undertake strict financial reforms as the IMF helps it rebuild their economies. Under this reform school, there will be a move towards more liberalization, greater transparency, tougher bankruptcy laws to eliminate moral hazard and more prudential regulation. 

In paper, this looks like a viable solution. But beneath the cloak, we cannot but realize that it is just another mechanism to further institutionalize the Western-style financial practices. It becomes clear that the wiring it hopes to implement is actually a ploy to get the emerging markets more effectively intertwined and "dependent" into the global financial markets led and dominated by the North, specifically the US.

The second alternative is aptly termed the "Back to Bretton Woods" reform school. The underlying restructuring agenda under this is the strengthening of capital controls and the imposition of safety nets. These proposed capital controls at the international level will of course be supplemented at the regional level such as Malaysia's tough measures to curb capital outflows. It could also follow the lines of Chile's strict rules on capital inflows as it requires a specific period of time for the foreign investment to stay put in the country.;

Proponents of this reform school feel that stricter capital controls will prevent destabilizing movements of speculative capital while at the same time encouraging the inflow of long term direct investment and credit. These controls used as trade and industrial policies will greatly help in the pursuit of economic development.

Consequently, this reform school calls for the re-structuring of the World Bank, the IMF, and the WTO along the lines of greater accountability. There has to be less doctrinal approach to free trade liberalization plus a legitimized voting power in these institutions for developing countries. Though this view infuses greater power and role to the IMF, it is unlike the previous suggestion of the G7. For this second alternative, the IMF is seen as achieving the same goals and playing the same roles minus the tight conditions that currently accompany its emergency lending policies.

We however favor a third school of reform that we conveniently call, "It's the development model, stupid." The advocates of this theory feel that there is no possible means to really transform the multilateral agencies, which we see as the lynch-pin of an international system that systematically marginalizes the developing countries. We also have apprehensions about the cutting edge and supposed far-reaching effects of imposing capital controls both internationally and regionally. We do not merely assign the blame on speculative and volatile capital circling the region as cause of destabilizing the regional economies and thus spawning the crisis. Using this view, the main problem apparently lies in the development model itself. The main problem is the very fabric of institutionalizing exports and foreign capital as the twin engines of economic growth and development. As countries went on in their pursuit of economic prosperity via export-led growth, they have become so intertwined with the global economy and greatly dependent on foreign capital that without these two, they no longer see nor are they ready for another road to development.


It becomes clear that the only secure way out of this turmoil, the road away from crisis is to de-globalize the domestic market. There must be moves to make countries more internally reliant, that they must depend on internal factors and domestic markets to be engines of growth. An establishment of a true cooperative relationship among neighboring countries will also be highly beneficial. Also, it is quite important that these Asian countries ought to learn that there is virtue in taking things slow, that there is absolutely nothing wrong with a slower rate of growth and development so long as this ensures less income inequality and less environmental harm.

Of course it would be much more helpful if we can truly speak of a reformed and restructured global financial architecture. However since that does not happen overnight and that may take on a few more years down the road, it is best we keep two things in mind at the moment. We must be vigilant in not letting these reforms be another veiled means to further integrate the emerging economies into the established global system controlled by the North. Second, we must create room for capital controls, trade measures and regional cooperative arrangements to facilitate internal economic transformations with the absolute minimum disruption from external forces and manipulations.


It is time we realize that prosperity doesn't end in economic tables alone. What ought to be measures for growth and development, for economic prosperity, for success? Two years after the crisis and at the turn of the new century no less, we must finally realize that 10% growth rates are not the be-all and end-all of everything. Profit is not the only measure for a country's success. All these are not to be seen as ends in themselves.

What good is development if it is pursued at the risk of the population's security and well-being, at the expense and the endangering of the environment, if it does not trickle down to the masses as a form of equitable income re-distribution? What good is amassed wealth and a sound economy when this does not translate to better services and security for the people?

Beyond 2000, we must realize that there is an ever-growing call to look at development in a sustainable way. Real development ought to be generated using internal factors and resources. It must be made felt to the entire constituency. Development must translate into poverty alleviation, crime prevention, a sound and stable governing body matched with a sound economy. Further into the 21st century we also see that there will be a clamor for greater democracy in all facets of society.

We may well be on our way to recovery. The challenge is to hang on and stick to the road no matter what the initial cost. The challenge is not to let go of the vision that there is an alternative to growth and that is achievable. The challenge is to realize there is a way out of this crisis if only we are collectively willing to trek the road together.

1  Zeti Akhtar Aziz, Asia Plots the Way Forward; Asiaweek; May 28, 1999; page 86

(This presentation was made by Marissa de Guzman at the Consultation " FROM CRISIS TO KAIROS CCA URM BEYOND 2000 " held in Bangkok  1-4 October, 1999)