Is "New Financial Architecture" Really Necessary?
March 2, 1999
Despite earlier dire predictions, financial turmoil in Southeast Asia did not spread around the world to jeopardize the stability of advanced economies. The U.S. and other developed economies weathered the threat and emerged relatively unscathed -- even though exports to Asia from the U.S., Europe and Japan have declined.
That the "Asian flu" was successfully contained calls into question earlier demands that the world must have a "new international financial architecture," some experts argue.
- Economies producing more than 80 percent of worldwide output have been largely unaffected by crises in Asia and elsewhere.
- The European Union's low growth rate and high unemployment rate both held steady throughout the crisis, as did Japan's economy -- which continues to stagnate.
- The Chinese economy continues to grow at a fast clip -- even if the officially reported 7.8 percent rate of growth is suspect and although it is beset by such problems as costly state industries and vulnerable domestic banks.
- And India, while realizing at best only modest progress in liberalizing its economy, has maintained a growth rate of between 4 percent and 5 percent.
If these countries would reject their defective policies and replace them with sensible ones -- as South Korea and Thailand have done in the past year -- their economic prospects would improve dramatically, financial experts predict.
They argue against expanding the resources and authority of such entities as the World Bank and the International Monetary Fund. Given the recent track record of those two bodies, it is reasonable to assume that they might only exacerbate the headache of the next foreign economic flare-up.
Source: Charles Wolf Jr. (RAND), "Financial Flu Isn't Contagious," Wall Street Journal, March 2, 1999.
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