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Return to this forum's introduction. Questions answered in this forum: Won't this have a negative impact on the U.S. economy? What signs will indicate improvement? Why does Singapore seem more stable? What is the IMF and how does it work? How would an Asian Monetary Fund affect economic and political dynamics?

Donald Holsten of San Francisco, CA asks: If the Asia economic problems are government-caused in great part, then why has Singapore not suffered as the rest? Is Singapore a new working model for successful socialistic government? Why does Singapore seem more stable than Hong Kong? Arthur Alexander responds: Is there a new Asian model? Each of the Asian countries has a unique set of attributes. The one cross-cutting theme in their various crises is the non-economic allocation of capital. One of the things to examine in each country is the scale of the misallocation relative to the whole economy. How much of the economy is subject to non-market forces and how much of that sector is in a mess? These ratios vary significantly across countries. Hong Kong is highly market oriented, yet it had a property price bubble. Prices rose under the expectation of future price increases, based on extrapolation of past increases. I expect that prices will adjust quickly to the new reality, loans will be revalued, some financial institutions will go bust, and things will continue. Singapore has had massive, policy-directed investment that has yielded very low returns. However, it is not clear that a large-scale revaluation will have to occur. (I am not that familiar with the Singapore situation.) The issue of economic models is important because the present situation reveals some critical shortcomings of the Asian model, which included as a major theme the government direction of investment. The problem is that government, even when it was competent and honest, often chose badly. When it was less competent and honest, we saw cronyism, corruption, emphases on projects favored by high officials, non-economic decisions by banks, politically motivated bailouts and protections, and other behavior that wasted and dissipated the public's hard-earned savings in economically inefficient investments. Some argue that that may be the price to pay for mobilizing savings in a massive way for rapid growth. Others suggest that the economies would have grown even faster with less intervention, more openness, and more competition. Nariman Behravesh responds: Singapore has managed to avoid many of the excesses of the other Asian countries. Specifically, Singapore has almost no debt. Also, despite its occasional heavy-handed policies, the government is fairly honest and clean. However, it would be a mistake to interpret Singapore's success as an example of socialist success. Hong Kong's instability is, in part, related to concerns about its future role in Greater China and its costly attachment to a fixed exchange rate with the dollar. Next: What is the IMF and how does it work?

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