Pittsburgh Post-Gazette Thursday, September 24, 1998World Bank economist calls for more U.S. involvement in Asia
By Michael Newman, Post-Gazette Staff Writer
The economic crisis in Asia did not arise and will not recede without assistance from the United States, according to the chief economist of the World Bank.
Joseph Stiglitz told a meeting of the Economic Club of Pittsburgh yesterday that the scope of the crisis "is hard to underestimate."
"There is a depression going on in some of these countries," he said. In Indonesia, for example, where the economy is projected to contract by 16 percent this year, the crisis "is probably beyond the Great Depression in the United States." Tens of millions of Indonesians will be plunged into poverty in the next year.
Yet he acknowledged the problems defy easy solutions. "It's a lot easier to prevent a recession or depression than it is to get out of it," he said.
Stiglitz, who was in Pittsburgh to deliver the 1998 Marion O'Kellie McKay Lecture at the University of Pittsburgh, is also a member of the president's Council of Economic Advisors. He is a professor of economics at Stanford University.
Wall Street tends to cite a "lack of transparency" among Asian banks as a major factor in the crisis, he said, pointing out that many financial institutions were not forthcoming with investors about their worsening portfolios.
But Stiglitz rejected this argument on two fronts: First, banks in Asia are not necessarily less transparent than banks elsewhere. And second, even if they were, it wouldn't have mattered.
Most investors in Asia "knew they were facing risks that were palpable," he said. "Transparency is not the key issue here. I believe in more transparency. But we can't think of that as the solution, as much as we'd like the low-budget solution."
In Asia, Western currency traders are a popular target for blame. Stiglitz said this view, too, was overly simplistic.
Instead, it was "the misguided policies of economic liberalization," encouraged by the United States, that drove many Asian countries to ruin.
"We had a lack of understanding of what it takes to make a market economy work," he said. Increased liberalization of markets and industries without a commensurate rise in oversight can create economic disaster, he said.
When Thailand liberalized its banking industry, for example, it expanded, but the country's finance ministry actually shrank - because the banks hired many of their new executives straight from the ministry.
Strengthening the "institutional infrastructure" of the market is important for both practical and philosophical reasons. With their weakening economies, he said, many Asians see their situation "as the failure of the market."
"This is not a failure of the market, but of the regulation required to make it work," he said.
The United States can play an important role, he said, in helping these countries devise methods for better oversight. A "redesign of the international architecture" of some institutions may also be necessary, he said.
The International Monetary Fund may have erred in its early response to the Asian crisis, he said. But its continued involvement in the situation, aided with funds from the United States, is crucial.
Stiglitz also addressed the situations in Russia and Latin America in his talk, both of which he cited as worrisome.