Asean demonstrates willingness to learn
Much as the case has often been made in this column that the northern economies of the Asian region (excluding Japan) are doing better than the southern ones, there is one area in which the positions are reversed.
The governments of Asean (Association of Southeast Asian Nations) were still overall showing fiscal surpluses at mid-year while governments in the northern part of the region were showing an overall deficit. It indicates that lessons have been learned from the last big regional financial crisis in 1984-85. That one was particularly severe in Asean and, more than anything else, it resulted from profligate government spending. Fiscal deficits mounted and, when they could no longer be sustained, the result was a collapse in economic growth.
Over the following years Asean governments put considerable effort into keeping expenditures down while economic recovery boosted revenue growth. They also retired debt to remove one of their biggest burdens.
The present slowdown is once again taking a toll of government finances and both the Philippine and Thai governments have slipped into deficit again. But these deficits are still relatively small given conditions at the moment and continuing surpluses elsewhere in Asean suggest the lesson has not been forgotten.
The northern governments never suffered as much in 1984-85 from excessive spending and, with no old wounds to re-open, seem less worried about running deficits now.
The figures used for the chart are open to a good deal of interpretation, however. Governments have a way of muddying their figures and are often tardy in reporting them.
For northern governments the figures assume that the mainland will incur a fiscal deficit of 50 billion yuan (about HK$46.5 billion) this year, only slightly down from 1997 and higher than official forecasts because of economic slowdown and the cost of the recent floods. For Hong Kong they assume a 1998 deficit of $15 billion because of rising expenditures to which the government has committed itself, most particularly in housing.
In Asean the figures for Singapore take into account only operating revenues and expenditures. The Singapore Government publishes figures for capital expenditure but not for capital revenue. If capital figures were included Singapore's fiscal surplus would probably go down.
In Indonesia the figures assume that international aid and borrowings do not count as revenue although the Indonesian Government pretends they do. But they also strip debt repayment out of expenditures because the international norm is to include debt service but not debt repayment.
It is unlikely, however, that the differences which the chart shows between north and south would change much if full up-to-date figures were available in every case and all adjustments could be perfectly made. The differences ring true because they reflect known historical events and pressures on government.
But it is still obviously history they reflect. The bigger question at the moment is whether Asian governments, and more particularly Asian monetary authorities, will learn the lessons of the present crisis that fixed exchange rates propped up through market intervention and the vast inflows of speculative foreign capital this encourages can produce economic troubles greater than those suffered in 1984-85.
If these lessons are taken on board as fully as the lessons of 1984-85 then the region can once again look to bright prospects at some point in the future.