|ROAD TO RECOVERY?|
September 13, 1999
ELIZABETH FARNSWORTH: Three perspectives on the Asian economy, and to Robert Hormats, vice chairman of Goldman Sachs International; Thea Lee, an international economist with the AFL-CIO; and Godwin Wong, professor at the Haas School of Business at the University of California Berkeley, and at Golden Gate University. Robert Hormats, let's start with Indonesia. What effect is the East Timor situation having on recovery there?
ROBERT HORMATS: Well, it's certainly not very helpful. The economy there has been in bad shape for the last couple of years as your piece pointed out. It was just beginning to recover. A little bit of investment was just beginning to come in. Now investor confidence has been shattered. The economy is going to be in for a much more difficult time. The expense of dealing with the problems in East Timor are going to put additional pressure on the economy. I think that's going to be a big problem for Indonesia and will probably mean at least several more quarters, perhaps several more years, of recession in that country.
ELIZABETH FARNSWORTH: Thea Lee, anything to add to that?
THEA LEE: Well, I think the events in Indonesia are sobering and they remind us that we can't get the economic prosperity without addressing some of the political problems and the underlying democratic problems that we've seen, too.
ELIZABETH FARNSWORTH: And Godwin Wong, how would Indonesia's situation radiate out to the rest of Asia? How important is it for the other economies? You heard President Clinton say it could be very important indeed.
|Contagious economic problems?|
GODWIN WONG: I think there is a factor of a contagious, you know, spread-out, you know, from one country to the other because very often, you know, the world would react, you know, somewhat to what is happening in one or two countries and they would think that it is going to affect some of the whole region and so that is the concern.
ELIZABETH FARNSWORTH: Mr. Hormats, do you agree with that, that there could be a lack of confidence spreading from the East Timor situation in Indonesia?
ROBERT HORMATS: Well, I think Indonesia in a way has been pushed to the side in the region. The other countries of the region are doing a lot better for the most part than Indonesia. Indonesia could have a negative effect on some of its neighbors, certainly on Singapore, Malaysia and to a degree Australia because of immigration and because of disruption in trade.
But we should remember that Korea, Thailand, Malaysia, are doing a lot better. And I think they're going to continue to do a lot better, even with the problems in Indonesia because they're selling more to Japan, which is beginning to grow, to the United States. And more importantly, they've got their own economies in order and they're doing a lot of things to strengthen the economic outlook as they have been over the last couple of years.
ELIZABETH FARNSWORTH: Thea Lee, continue with that, leaving aside East Timor for a minute and looking at the broader Asian situation as a whole. What do you see? What does your research tell you?
THEA LEE: Well, we see the beginnings of an economic recovery, but I think it's also important to remember that some of the underlying causes of the Asian crisis haven't yet been addressed; that we have still continuing problems with democracy, with human rights and workers rights and that those issues are going to need to be addressed before we can see a really strong and sustained economic recovery and that the political issues, the political stability, are issues that are also important to investors over the long run.
ELIZABETH FARNSWORTH: Be specific. Aside from Indonesia, pick a country or situation and be specific about what you see with workers' right and other issues.
THEA LEE: We see a lot of countries struggling with workers' rights. We see in Korea strong labor unions that are being brought into the dialogue over how the economy recovers. And I think that has been part of the reason for stronger economic performance in South Korea but it's also, you can also see a lot of tension, a lot of political tension, that it's not easy to address these issues and move forward at the same time.
But the stronger trade unions in Korea, I think show us the contrast between that country and Indonesia, where you didn't have the strong unions, you had a repression -- a violent repression of labor unions under the Suharto regime. And you had a repression of civil society and democratic dissent in general -- and I think those two countries off a very important contrast in terms of the prospects for recovery.
MARGARET WARNER: How do you see the prospects for recovery?
GODWIN WONG: I think the prospect is pretty good. However, like Thea was just mentioning, there are some other issues that might be of concern now. For example, one major issue would be the banking system. I feel that, you know, the Japanese banking system and to some extent, you know, right now in China, you know, banking system there are quite a few issues that would be of concern. And unless such kind of structuring or restructuring, you know, are done properly, then there could be other problems that might come up at a later date.
|Will reforms continue?|
ELIZABETH FARNSWORTH: So Professor Wong, how do you see it -- that this is a mid point somewhere between the differentiates of 1997 and where it might go? And do you picture the reforms continuing along the way? Or are you concerned those reforms that you and Thea Lee and others have mentioned won't happen?
GODWIN WONG: I think that all the countries are very alert, put it that way -- so that they are putting in all their effort, you know, trying to go through some kind of reform or restructuring. And I think that right now to say that is the mid-point is a fair assessment, but it would not be very obvious that it would quickly go back to what was three or four years ago.
ELIZABETH FARNSWORTH: You think it wouldn't do that?
GODWIN WONG: It would not in the very near future. There would have to be another more substantial, overall, you know, reform and restructuring to get it all the way to be above the level of several years ago.
ELIZABETH FARNSWORTH: What do you think about that, Robert Hormats?
ROBERT HORMATS: Well, I think the reform process certainly has to continue. There's no question about that. Progress has been made in several areas. A number of these countries have enacted laws to improve the regulation and supervision of their banking system; they've improved bankruptcy laws, a number of their banks have been recapitalized so the banks will be able to make more loans. An effort is being made slowly to take some of the large amounts of debt off the books of the corporations so they can regain their vitality.
All these things are underway. But they need to continue and there is always, of course, a danger of complacency. Markets now have come back, interest rates are a lot lower. And I think it's important that the governments and the corporate sector and the banks continue to restructure their economy and make them more efficient and to continue to improve corporate governance, which means working with shareholders and labor unions and working with other groups in the economy to build a stronger economic base for the future.
All these things are important. I think they can grow reasonably well over the next couple of years on their own -- but to sustain that growth over the course of the next decade and to become much stronger economies in the future, they need to deal with a lot of these underlying structural issues. They've made some progress. The key is to continue that progress.
ELIZABETH FARNSWORTH: Thea Lee, if you had to pick one lesson that's been learned, what would you pick?
THEA LEE: From the Asian crisis?
ELIZABETH FARNSWORTH: Yes.
THEA LEE: The lesson is you can't proceed with economic growth, trade liberalization, capital account liberalization and hope all the other kind of democratic reforms and human rights and worker rights reforms and environmental protections will come naturally as a result of the economic growth -- that these things need to come together; they need to be taken care of early on. Otherwise, you build an economy or a political system where the powers are so imbalanced and so lopsided toward either the corporate sector or a corrupt government, you don't have the countervailing balance from labor unions and civil society groups and religious organizations that that system is ultimately very unstable.
ELIZABETH FARNSWORTH: What do you think the key lesson is, Professor Wong?
GODWIN WONG: I think that it is important for the different countries to realize not to overreact to what some of the positive indicators that's already been on the books, because I feel that, you know, those indicators are just temporary. And so the more important part is to make sure that a year from now, for example, if some of those indicators persist, then I would feel a lot more positive about it. And I think that it's a lesson that all of us would learn -- not only the Asian countries but also the rest of the countries that are doing business with them.
ELIZABETH FARNSWORTH: Mr. Hormats, fit Japan into this now for us, into this the whole picture.
|Japan in the equation|
ROBERT HORMATS: Well, Japan has been a problem for the region for really the better part of this decade with very slow growth and for much of the period a relatively weak yen. What we've seen recently is that growth in Japan has begun to pick up, they're no longer in a recession and the yen has strengthened. That's very positive for other countries in the region. Many of them sell to Japan, and therefore when the yen picks up, it makes their exports more competitive. But then, many of them compete with Japan and the United States and other markets.
So stronger growth in Japan and a stronger yen give a boost to exports to other countries in the region. And that is very helpful to all of them. The key for Japan is to continue to sustain growth, to build a much more robust economy and a stronger banking system, which in turn is helpful for providing credit to the Asian region. That needs to continue in Japan. They can't weigh down the region as they have in the past. They have to be part of the solution, rather than part of the problem.
ELIZABETH FARNSWORTH: Thea Lee, add anything you want on Japan and tell us how you see China fitting into this picture.
THEA LEE: Well, I agree with Bob Hormats, that continued economic growth of Japan is really important to the region, that the United States economy has absorbed a lot of the extra exports from the Asia economies. There's not going to go on indefinitely; there's not an unlimited amount of capacity in the U.S., either in the consumer sector given the size of the trade deficit, the growing trade deficit in the United States for that to continue indefinitely. So Japan's growth is a key part of the regional economic recovery.
China, I think is very important in the whole situation and the direction that China goes will, I think, have a big impact on the region. It's such a large economy, it's such an important economy, a politically important economy, and China's unwillingness to address these very issues of democracy and human rights and worker rights should be very troubling, I think, to all of us.
It's an issue I think should be raised bilaterally between the United States and China early rather than late; that we don't need to focus exclusively on the economic relationship with China and the potential for export markets and for foreign investment and so on at the expense of addressing the very serious problems, the very grave abuses of worker rights that are happening in China. That maybe is one of the lessons we should learn from our relationship with Indonesia as well.
|Economic leadership in Asia|
ELIZABETH FARNSWORTH: Professor Wong, what would you add on China?
GODWIN WONG: I think that up to this point, you know, Japan represents a majority of the total economic size of Asia. But there has been all the indicators that sometime in the future quite soon that the collection of China, Hong Kong, Taiwan, Singapore, that group might become the leader that would, you know, would influence and affect the overall growth of China. So we're dealing with a leadership of economic growth in Asia.
ELIZABETH FARNSWORTH: And there have been some negative indications in China, right, as well as some positive ones. How do you see the balance?
GODWIN WONG: I think that there are some problems, you know, that China are facing, such as I mentioned earlier about the banking situation, you know, the currency devaluation or, you know, plus when you add the shifting of Hong Kong and Shanghai and all of that. But overall, I think that the basic structure is positive so that there would be a lot of positive indicators that it might become a dominant factor.
ELIZABETH FARNSWORTH: Just a few seconds left, Mr. Hormats on China for you.
ROBERT HORMATS: I think China is going to continue to grow. They have to still deal with the banking problems. They have a lot of non-performing loans. They have to reduce the size of the state enterprises. Many are inefficient. They have to increase incentives for private investment, both within China and outside of China, and W.T.O. membership is very important to China.
It will inject more competition in China, enable them to play by international rules. And I think if the United States and China can work that out, that can induce more liberalization and pluralisms in China and can also help to improve bilateral relations between China and the U.S., a very important factor going forward for the United States, for China, and the global trading system.
ELIZABETH FARNSWORTH: Thank you all very much for being with us.