{"id":81387,"date":"2018-09-25T15:48:57","date_gmt":"2018-09-25T22:48:57","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=81387"},"modified":"2018-09-25T15:48:57","modified_gmt":"2018-09-25T22:48:57","slug":"the-unsaved-world","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2018\/09\/25\/the-unsaved-world\/","title":{"rendered":"The Unsaved World"},"content":{"rendered":"

(Published in New York Times in Aug 2013)\u00a0<\/em>By <\/strong>PAUL KRUGMAN<\/a><\/strong><\/em><\/span><\/h2>\n

The rupiah is falling! Head for the hills! On second thought, keep calm and carry on.<\/p>\n

In case you\u2019re wondering, the rupiah is the national currency of Indonesia, and, like many other emerging-market currencies<\/a>, it has fallen a lot over the past few months. The thing is, the last big rupiah plunge was in 1997-98, when Indonesia was the epicenter of an Asian financial crisis. In retrospect, that crisis was a sort of dress rehearsal for the much bigger crisis that engulfed the advanced world a decade later. So should we be terrified about Asia all over again?<\/p>\n

I don\u2019t think so, for reasons I\u2019ll explain in a minute. But current events do bring back memories \u2014 and they are, in particular, a reminder of how little we learned from that crisis 16 years ago. We didn\u2019t reform the financial industry \u2014 on the contrary, deregulation went full speed ahead. Nor did we learn the right lessons about how to respond when crisis strikes. In fact, not only have we been making many of the same mistakes this time around, in important ways we\u2019re actually doing much worse now than we did then.<\/p>\n

Some background: The run-up to the Asian crisis bore a close family resemblance to the run-up to the crisis now afflicting Greece, Spain and other European countries. In both cases, the origins of the crisis lay in excessive private-sector optimism, with huge inflows of foreign lending going mainly to the private sector. In both cases, optimism turned to pessimism with startling speed, precipitating crisis.<\/p>\n

Unlike Greece et al., however, the crisis countries of 1997 had their own currencies, which proceeded to drop sharply against the dollar. At first, these currency declines caused acute economic distress. In Indonesia, for example, many businesses had large dollar debts, so when the rupiah plunged against the dollar<\/strong>, those debts ballooned<\/a> relative to assets and income. The result was a severe economic contraction, on a scale not seen since the Great Depression. <\/strong><\/p>\n

Fortunately, the bad times didn\u2019t last all that long. The very weakness of these countries\u2019 currencies made their exports highly competitive, and soon all of them \u2014 even Indonesia, which was hit worst \u2014 were experiencing strong export-led recoveries.<\/p>\n

Still, the crisis should have been seen as an object lesson in the instability of a deregulated financial system. Instead, Asia\u2019s recovery led to an excessive showing of self-congratulation on the part of Western officials, exemplified by the famous 1999 Time magazine cover<\/a> \u2014 showing Alan Greenspan, then the Fed chairman; Robert Rubin, then the Treasury secretary; and Lawrence Summers, then the deputy Treasury secretary \u2014 with the headline The Committee to Save the World.\u201d The message was, don\u2019t worry, we\u2019ve got these things under control. Eight years later, we learned just how misplaced that confidence was.<\/p>\n

Indeed, as I mentioned, we\u2019re actually doing much worse this time around. Consider, for example, the worst-case nation during each crisis: Indonesia then, Greece now.<\/p>\n

Indonesia\u2019s slump, which saw the economy contract 13 percent in 1998, was a terrible thing. But a solid recovery was under way by 2000. By 2003, Indonesia\u2019s economy had passed its pre crisis peak; as of last year, it was 72 percent larger than it was in 1997.<\/p>\n

Now compare this with Greece<\/a>, where output is down<\/a> more than 20 percent since 2007 and is still falling fast. Nobody knows when recovery will begin, and my guess is that few observers expect to see the Greek economy recover to pre crisis levels this decade.<\/p>\n

Why are things so much worse this time? One answer is that Indonesia had its own currency, and the slide in the rupiah was, eventually, a very good thing. Meanwhile, Greece is trapped in the euro. In addition, however, policy makers were more flexible in the \u201990s than they are today. The International Monetary Fund initially demanded tough austerity policies in Asia, but it soon reversed course<\/a>. This time, the demands placed on Greece and other debtors have been relentlessly harsh, and the more austerity fails, the more bloodletting is demanded.<\/p>\n

So, is Asia next? Probably not. Indonesia has a much lower level of foreign debt<\/a> relative to income now than it did in the 1990s. India, which also has a sliding currency that worries many observers, has even lower debt. So a repetition of the \u201990s crisis, let alone a Greek-style never-ending crisis, seems unlikely.<\/p>\n

What about China? Well, as I recently explained<\/a>, I\u2019m very worried, but for entirely different reasons, mostly unrelated to events in the rest of the world.<\/p>\n

But let\u2019s be clear: Even if we are spared the spectacle of yet another region plunged into depression, the fact remains that the people who congratulated themselves for saving the world in 1999 were actually setting the world up for a far worse crisis, just a few years later.<\/p>\n","protected":false},"excerpt":{"rendered":"

(Published in New York Times in Aug 2013)\u00a0By PAUL KRUGMAN The rupiah is falling! Head for the hills! On second thought, keep calm and carry on. In case you\u2019re wondering, the rupiah is the national currency of Indonesia, and, like many other emerging-market currencies, it has fallen a lot over the past few months. The […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-81387","post","type-post","status-publish","format-standard","hentry","category-forum"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/81387","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=81387"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/81387\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=81387"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=81387"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=81387"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}