Greece is a long way from Indonesia of 1997, but the European nation could learn from Asia’s own crisis.

 International Monetary Fund (IMF) Managing Director Michel Camdessus, left, looks on as Indonesian President Suharto signs the new IMF deal at Cendana Residence in Jakarta Thursday, Jan. 15, 1998. (AP Photo/Muchtar Zakaria)

In a file photo, former International Monetary Fund Managing (IMF) Director Michel Camdessus looks on as then Indonesian President Suharto signs an IMF deal in Jakarta, Jan. 15, 1998. (AP Photo/Muchtar Zakaria)

By Richard Hubbard

There’s a famous photo from the Asian crisis of the late 1990s of then IMF managing director Michel Camdessus, arms folded, standing over Indonesia’s President Suharto.

More than anything it illustrated what can happen to a proud independent nation when it fails to meet promised reforms.

The humiliation captured in that photo stunned a nation and help put paid to the dictator’s 30-year long reign.

It’s open to debate whether there will come a point where Greek Prime Minister Alexis Tsipras is forced to sign a new deal with creditors under the steely gaze of current IMF chief Christine Lagarde.

But if Greece exits the eurozone and starts relying on a domestic currency again, it’s likely only the IMF can help them.

And while the international body may have softened its stance in recent years, many Asian nations would confirm it’s an experience not to be forgotten.

A Greek drachma coin next to a scrunched up Euro banknote, 29 June 2015. Federico Gambarini/picture-alliance/dpa/AP Images
An old Greek drachma coin next to a Euro banknote, 29 June 2015. (Federico Gambarini/picture-alliance/dpa/AP Images)

At the moment Greece is a long way from Indonesia in 1997, when I had to clamber over barbed wire and walk around tanks on the main roads of the capital Jakarta to report on the latest moves by the beleaguered government.

A memory seared in my mind from the height of that crisis, when the government was struggling to keep the economy afloat, was a visit to the central bank.

I found the vast atrium of the building filled with pallets of freshly-printed rupiah bank notes. They had simply run out places to store it all.

If there is a lesson from Asia’s financial crisis for the Greeks, it is that once a nation gets beyond the anger and the frustration of seeing its economy reduced to tatters by capital flight and debt woes, there can be a strong recovery.

Of course it helps if there’s a large, fast growing economy in the region  — China for many Asian countries.

The growth rates of some of the hardest hit Asian nations  — Korea, Thailand, Malaysia and Indonesia  — have been phenomenal over the past two decades. Many of these countries quickly repaid the emergency loans given to them as part of their initial rescue plan.


Greece is closer to Asian nations of 18 years ago than many might think.


Could this be the ultimate outcome for Greece? As a powerhouse German economy encourages a strong export focus on its weaker European neighbor? And a weak Greek national currency causes a shift in German holiday patterns to favor the delights of Greek islands?

Or could Greece follow the pattern established by South Korea and use a weaker domestic currency to foster a return to traditional industries such as ship building, which the Koreans once dominated?

Then there is the Malaysian route: issue a new currency and peg it at a fixed rate, impose capital controls and ride out the storm. It worked in a way that maintained Malaysian national pride, but cost a lot in terms of missed growth opportunities over time.

While “Grexit” may not be inevitable, it is certainly looking more likely.

Invesco’s chief economist John Greenwood, who was the architect of Hong Kong’s exchange-rate system, estimates that Greek government debt is around €320 billion, or 180% of GDP in 2015.

Although this is held mainly by the European Union, the European Central Bank and the IMF — the “troika”– rather than the private sector, Greenwood says Greece is effectively “insolvent.”

In that sense, it is closer to the state of the Asian nations 18 years ago than many might think  — perhaps not be a bad thing.


rhubbard

Richard Hubbard is a finance and economics journalist with more than 30 years reporting from Australia, the UK, Asia and the Unites States. He is currently news editor for International Adviser, a web site serving financial advisers in the UK, Middle East, Asia and South Africa, and was formerly Global Markets Correspondent for Reuters. He covered the Asian financial crisis of the late 1990s from Hong Kong and Singapore, and later the run-up to the 2008 financial crisis from London.

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One comment

Greece can learn from Asia’s crisis

  1. An interesting article, I like the way you consider the different options. I accept the idea that if Greece did have to switch to its own, presumably very weak currency, that there would be benefits (export boost), as well as disbenefits. I think the comparison with East Asia is not that relevant, because all those countries you name, and I’m sure you would agree, they differ greatly, had a key position in the world economy and the flows of world trade. They all occupied niches which offered them rapid export led growth.

    Greece is caught in a difficult position because of its high import dependency. It’s difficult to see if Greece could really hope for a big export boom if it switched to a collapsing currency. Of course its debts would go through the ceiling. They would have to suspend debt repayments and exercise draconian foreign exchange controls to protect the availability of Euros to pay for imports. On the upside they could print money to stimulate the economy. But then what about imports? It raises questions about whether the modern democratic state has become so weak that it would actually be unable to successfully impose such controls.
    Personally I think the Greeks will continue with the less radical and less scary option of staying in the Euro but being trapped in a downward spiral of austerity leading to more debt leading to more austerity. In this case the only hope for the country is that the outside world decides enough is enough and cancels the debt on a massive scale, so the country can get going again.

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