Isn’t it ironic that, in the past, when emergent countries from Asia were confronted with financial crisis, the Western-trained economists advised them to perform a complete restructuring of the financial system (explicitly favoring bank closures or mergers and not supporting any more liquidity injections that would prolong the existence of a vulnerable system), but now, when the West has its own chance to make an example of how capitalism can handle any challenge, the biggest step it has been done to solve the present distress is represented by bail out money?

Is the present value of a future cost of the crisis (if the government would not have interfered) really higher than the amount of money which is needed now to save the financial sector? Let’s look at the case of Indonesia and Korea when they had to face the financial crisis that took hold of Asia in the late ‘90s: while China was rather insulated by the currency peg to the US dollar and Japan had to devalue its Japanese yen in order to maintain its high export figures, Indonesia and Korea weren’t among the lucky countries that got less affected by the slump: the monetary policy was set tight because of the lack of liquidity; the unemployment rate and the poverty rose, the private consumption fell (with 6.2% in Indonesia and 11.7 – Korea), as well as the GDP for the year following the outset of the crisis. But in 1999 an economic growth was registered again, proving that the economy can adjust itself: the population was encouraged to save money because of the high interest rates and the aggregate demand grew with a steady pace. So, after the recession, the GDP of Indonesia was higher with 0.8% than that of the previous year and, for Korea, with 10.9% – this sharp difference in evolution between the economic states of the two countries occurred mainly because of the corruption and cronyism of the Indonesian political leaders.

We are dealing with a trade-off between short run benefits and long run benefits. So why the decisions made then and now are so different? It seems that it’s easy to be objective when the problems in question are of somebody else. Is this an occidental habit, not to practice what you preach?

Anca Stoian