Milton Friedman Bullish On Asia

International Policy

Milton Friedman Bullish On Asia

Economist and Nobel laureate Milton Friedman says that the "Asian miracle" is real, and that Asian nations will get back on track after dealing with their current economic problems. The solution doesn't lie in policies promoted by International Monetary Fund (IMF), however, says Friedman.

The Asian miracle was the dazzling growth rate that quadrupled real income per capita in Japan and the Four Tigers -- Hong Kong, Singapore, Korea and Taiwan -- from 1960 to 1985.

However, the rapid fall in value of Asian currencies and stock markets is partly due to the policies of the governments themselves.

In South Korea, the government distorted signals by controlling credit.

In Indonesia, the government awarded privileged positions to members and friends of President Suharto's family.

And even in Hong Kong, a banking cartel fixed interest rates.

But "in the main, they allowed the market to rule," says Friedman. He worries that the standard IMF package of higher taxes, lower government spending and higher interest rates is the wrong medicine for a crisis whose roots are in private and not government excesses. And Friedman says IMF policies are getting in the way of the virtues that made the miracle possible -- thrift, enterprise and high savings -- which are still there.

Friedman says currency boards -- which peg the value of a nation's currency to a stronger one, such as the U.S. dollar -- are still the best course for developing countries. But for that strategy to work, he says they must abolish their central banks.

Finally, regarding a reform favored by Suharto, "if Indonesia had a currency board," he asks, "what would there be left for the IMF to do?"

Source: Editorial, "Sayings of Chairman Milton," Far Eastern Economic Review, March 26, 1998.

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