Asia’s hearing a great sucking sound as lots of hot money flees the region as the US Fed signals an end to the great monetary easing. India is getting jittery and Indonesia feeling some currency wobbles. East Asia faces the uneasy prospect of revisiting a series of ‘never again’ vows made during the Asian Financial Crisis of 1997–98, when the hot cash fleeing turned into a financial firestorm.
The ‘never again’ vows reflected the deep scars of the experience. But they were also part of a much broader determination that the Asian system of the 21st century will be designed for and by Asia. This is the Asia Essential which states the success or failure of Asia’s security system in the 21st century will be vital for the global system. Europe’s age recedes. Asia is rich and strong and no longer as subject to the Washington economic consensus.
Beyond the World Bank and the IMF—from the WTO to Climate Change negotiations—Asian positions will be decisive, sometimes definitive. Global norms will no longer—naturally, automatically—have to suit Western tastes. Asia can stir in its own flavours and has the potential—if not yet the capability—to decide on the creation and enforcement of norms. Whether it delivers concert or cataclysm, the new order in the Asia–Pacific will be owned and operated by Asians. Issues of identity and ownership—not just power and wealth—count in this discussion of concert and a new security system.
The Vasco da Gama era, in which Europe called the shots, is over. The era spanned a precise 500 years; in July, 1497, Vasco da Gama left Portugal to become the first European to sail around the Cape of Good Hope and reach India and on the night of June 30, 1997, amid torrential rain, British colonial rule ended in Hong Kong.
As Hong Kong returned to China, the firestorm of the financial crisis began to heat up. Asia’s rapid recovery from the economic disaster it suffered 15 years ago is a mark of the gathering force of the great turn to Asia. The photograph that came to symbolise the crisis was taken as Indonesia’s President Suharto sat at a table, his head bowed as he signed an emergency loan agreement with the International Monetary Fund. Standing with his arms folded above the seated President is IMF head, Michel Camdessus—the very image of the stern headmaster checking the homework of a recalcitrant pupil. The photo was a crystallising image for Asian elites. Camdessus personified the West, back to do a bit of lording over the region.
The Asian consensus that emerged from 1997–98 was that at a moment of crisis, ‘the US had abandoned them and was standing arrogantly on the sidelines’. The abandoned line is from Singapore’s Simon Tay who goes on to judge:
America’s domination of Asia, and Asians’ acceptance of that domination–the status quo of many decades–is ending.
All this informs the ‘never again’ resolutions. Never again would Asia have to ring Washington for financial help, the Washington consensus dictate terms to Asia or the key institutions of that consensus—the World Bank and the IMF—stand in judgement over Asia.
Many things have flowed from that moment. The IMF will wait a long time before it’s asked to play an emergency role in any major Asian country. The boards of the IMF and the World Bank are slowly being overhauled to lessen their European dominance and give more power to Asia. And, a decade on from the Asian crisis, when the Global Financial Crisis hit, this time the conditions imposed by the IMF in Europe and elsewhere were far more liberal than they were for Indonesia previously.
Asia has institutionalised a step towards the Asia Monetary Fund through the Chiang Mai currency swap. Ironically, the liquidity is offered in US dollars; it’s 80% financed by Japan, China and South Korea. A supposed pool of $240 billion isn’t chump change, but the importance of the Fund is as much in the statement of independence being made as the cash on offer. It symbolically underlines the identity and ownership of Asia’s new order (which is why Australia wants to join up).
Chiang Mai may be more icing than cake, as leading economists have noted, based as it is on a series of individual promises, lacking institutional mechanisms and with no rapid-response procedures. Asia’s institution building in the economic sphere has the same problems encountered in creating new security architecture. The structure is incomplete, but the intent is clear. After the near death experience in 97–98, Asia went on a savings binge. If you never want to call on the bank again, the imperative is to have a lot of your own cash in reserve. That’s what Asia did. Not only did Asian states rebuild their reserves quickly after the crisis, they stashed the cash with such single-minded gusto that they created huge mountains of dollars. Unlike Scrooge McDuck, nations don’t store surplus cash in giant vaults. Asia held its reserves in its trading currency—US dollars.
In the 97–98 crisis, the Asians were the bad boys; Washington and the West pointed the finger, read the lessons, occupied the moral high ground, and gave a bit of cash to ease Asia’s pain. A decade later, the roles were reversed in a Global not an Asian crisis. The Global Financial Crisis was caused by the debt binge driven by the US. What made that binge possible was the huge currency reserves built up by Asia and lent back to the US. The crisis was caused by poor regulation and extraordinarily greedy Western financial institutions. And much of it was financed out of Asia.
One of the last acts of the George W. Bush presidency was to hold an emergency G20 leaders summit in Washington in November, 2008, to brainstorm ways to save capitalism and the US economy. Some of the Asian leaders round the table (especially Indonesia’s President) must have had a hard time keeping a straight face.
Asia is richer and more powerful than ever before. Through the G20 and elsewhere, it will have a major say in the rewriting and administration of the new global rules. And Asia has been confirmed in its view about the dangers of the Washington consensus. All of this influences the discussion of Washington’s treaty system and Asia’s quest for a broader multilateral security system. The Washington consensus is no longer definitive for Asian economies. In the same way, Washington’s alliance system is still essential but it is no longer sufficient for Asia.
Graeme Dobell is the ASPI journalist fellow.