Years of Poems and Spirits

Prof. Bachman’s SISEA490 final asked two questions:

• Former secretary of state Madeleine Albright referred to the U.S. as the “indispensable country” for world order. Assess whether and how this might or might not be true for Asia.
• What roles has ASEAN played in the international relations of Asia? Has it been successful in those roles? Why or why not? Has ASEAN been an important and respected actor in Asian affairs? Again why or why not? Is it likely to become more or less important in the next 10 years?

Here are my answers. To the first question, my argument is: U.S.’s role in A-P is positive because peace and prosperity in the region are of U.S. interests too. Bush administration (not only the neocons) is indoctrinating U.S. exceptionalism. Realists defends an equally problematic “Hobbesian” worldview. “In this regard, it is a mistake to speculate whether or how history will replace American superpower with another one. What the U.S. should do is to leverage its unique position to foster greater liberalization, international cooperation and the rule of law. ”

To the second question,
“Amongst member states, ASEAN serves as an important platform to promote mutual understanding and cooperation. However, it could be argued that, as a regional collective, ASEAN has had more success dealing with outside powers, national (e.g. the U.S., Russia, and China) as well as communal (e.g. EU), than with internal members.”

“In an organization where Singapore is juxtaposed with Laos and Myanmar, the diversity will lend common causes with an impression of universality. But at the same time, it brings with it thick barriers to mutual trust based on shared values.”

“The truest regionalism, if there is such a thing, is the one that closely reflects the characteristic of the region. Founding members of the EU have experienced the purgatory of industrialization, imperialism and two World Wars together. The close integration among its members is the result of the region’s collective historical experiences. To expect ASEAN to rise beyond Southeast Asia’s own past, or otherwise dismiss it as regionalism in name only, is deeply troublesome.”

Bachman asked during class whether U.S. policies in Asia assumes that Asian countries can’t live peacefully with each other. As a result, the U.S. carries itself around as a local sheriff. Bachman implied a racist view underlies such policies.

Unfortunately, there may be reasons to justify such a “racist” view. In an earlier blog, I argued that Chinese society is built upon the existence of such an enforcer (the central government). I suspect other Asian societies may require the same condition.

In “democracies” such as the Phillipines, Thailand, and Turkey, the militaries still play an enlarged role in body politik–is this fact a rule or an exception in societies transforming from authoritarian rules? Are militaries in the abovementioned countries playing the missing enforcer role?

In ECON 471 Open Economy Macro, we did a group presentation on AFC.

Class presentation in PowerPoint.

Research notes and supporting data.

Some highlights:
AFC lasted only about 8 month. However, during that 8-month, more than 20 million people lost their jobs. Those still had their jobs took a double-digit pay cut on average.

Historical Context
Prior Crisis: Mexico peso 1994-5, European Monetary System 1992
“The East Asia Miracle”
In relation to Globalization

Regardless what political factors may be involved, we have to accept the premise that AFC was in its core an economic affair.

Listen to the Devil. The Devil here are the currency speculators. There is a nicer term for them: macro hedge fund.

For emerging economies, fragmented financial market poses an acute problem. In the case of South Korea, most of the short term loans were borrowed by banks themselves.

Financial crisis, especially those caused by predatory attacks, are difficult to stop once it started. During AFC, Hong Kong was able to defend its currency. Thailand almost succeeded but the levee broke at the last minute.

The first sign of currency vulnerability happened in early May 1997 when Japan hinted that it might raise interest rates to defend the yen. (See “A Brief Review” in research notes)

One of the most comprehensive, in-depth studies of the causes of AFC is the report titled “What Caused the Asian Currency and Financial Crisis” authored by Corsetti, Pesenti and Roubini . Authors are in the structual, moral hazzard camp. Paper written in 1998 (See “What We Have Learned” in research notes)

IMF’s role in AFC best described in Bluestein’s The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF. (may file a separate blog)

In the “Chronicle Trade Imbalance” section in research notes:
As discussed in Corsetti, Pesenti and Roubini paper, chronicle trade imbalance in emerging markets is most likely a sign of economic vulnerability.

Bretton Woods 2 System (BW2). The concept was first proposed in a series of influential papers by economists Michael Dooley, David Folkerts-Landau and Peter Garber. The authors argue that the fixed exchange rate arrangement in the original Bretton Woods System has now been replaced by a new de facto fixed rate arrangement centered on the trade-imbalance between the U.S. and China.

The large current account deficit has not eroded U.S. reserve. Judged by data published by Commerce Department’s Bureau of Economic Analysis, from 1998 to 2005, U.S. has actually increased its net foreign reserve balance—albeit very slightly.

Summary and comments on Roger W. Ferguson, Jr. Oct. 2004 speech: Interestingly, he says everything is not but not something is: personal savings is not as alarming, foreign indebtness is not sustainable, asset price is not a true reflection of productivity … but not: low personal savings is OK, foreign lending is the only source available now, asset price is a bubble. A very clear message indeed.