Asian Crisis Countries: Greece Getting Off Lightly

♠ Posted by Emmanuel in ,, at 5/04/2010 09:32:00 AM
The following article had me pause a bit. Given that the budget tightening (and accompanying deflation since it cannot devalue its currency) demanded of Greece is so severe that the country is not expected by some to approach 2009-level GDP until 2017, how can anyone say Greece is getting off lightly? The answer: crisis-hit states of the Asian financial contagion.

Aside from the question of whether the IMF should be bailing out Greece in the first place since its woes can be construed as primarily fiscal and not balance of payments ones as per the IMF's mandate (though our friends at IPE@UNC demur), we have this. Basically, the arguments are twofold. First, the voting weights assigned to the IMF which still reflect a post-WWII economic order give unduly large priority to Europe. Hence, Europeans can give softer terms to Greece if they wish to. And second, the IMF seems to be no longer in the Washington Consensus-style business of remaking borrowing economies in America's image.

Given that even America itself no longer follows the Washington Consensus, it may be a good thing:
The International Monetary Fund’s proposed bail-out for Greece is being criticised by Asian countries, as they worry that Athens may be getting an easier ride than Asian countries during the Asian financial crisis in 1997/98.

Senior South Korean officials said austerity measures imposed in 1997/98 had been more draconian than those expected to be presented to Greece. They suggested that the apparent leniency reflected the substantial voting power of European countries on the IMF board.

One [South Korean] official joked that the “European Monetary Fund is located on 19th Street,” the fund’s address in Washington. However, none of the IMF’s five Asian voting members – China, Japan, India, South Korea and Thailand – appears to be preparing to oppose the deal when the package is presented to the 25-strong board.

Korn Chatikavanij, the Thai finance minister, said the “mistakes” made by the IMF in 1997/98 were “apparent”. Mr Korn added, however: “We are not going to begrudge the IMF for doing a better job, from using the lessons learnt from the missteps in Asia.” The IMF was widely criticised during and after the Asian financial crisis for the severity of conditions attached to its $41.3bn bail-out programme for Thailand, Indonesia and South Korea, which included bank closures, big public spending cuts and higher interest rates.

Grumbles about European influence reflect lingering resentment about the substantial voting power wielded on the IMF board by European countries, which largely reflects the distribution of economic power when it was founded in 1945.

In Seoul, officials appeared resigned to what they saw as double standards from the IMF and indicated that South Korea’s representative would take no action on the board. One official said he expected discussions on the board to be “smooth.” Another pointed out that the country “has no tradition of taking extreme positions”. South Korea’s presidency of the G20 group of leading economies gives it an added incentive to ensure a coherent IMF response to the Greek crisis.

Japan is understood to be giving strong support to the Greek package. Tokyo shares the sense of urgency felt in other developed nations on the issue and is concerned about possible market contagion in Asia, although there have been few signs of that yet. Japan is also anxious that the terms of the support package should be robust. The view from Tokyo is that some Asian developing countries may be unhappy with the IMF’s perceived generosity to Greece. However, Tokyo does not currently expect such unhappiness to threaten the creation and implementation of the eurozone-IMF package.

China has given no public hint of its stance, but there were no indications of any intention to delay or oppose the deal. European diplomats in Beijing said they were confident that Chinese would support the package. The Reserve Bank of India appeared concerned to ensure that the Greek crisis did not spread to Asia. There were no signs of unhappiness in New Delhi with the package being prepared for Greece.
Grumble, grumble. But why would Asian nations believe draconian measures are necessary for Greece when they themselves chafed at such measures being applied to them? In 1998, Richard Higgott coined the term "politics of resentment" to describe what crisis-hit Asian states felt at the time. In 2010, I guess they still are, well, resentful.

Also review some of the writings on proposed IMF reform that should help allay Asian nations' concerns that European ones still dominate the institution despite the changing geography of economic activity.