Not-my-fault contagion spreads to World Bank
The World Bank has come to a firm view on why the Asian downturn has been so bad. Chief economist Joseph Stiglitz says it is because of the lack of accurate information about companies, markets and economies.
Speaking at the launch of a World Bank report entitled Knowledge for Development he said: 'Company accounts in many of these economies were not transparent and, taken together with other weaknesses in the region, investors felt they did not know if their money was safe and so left in a panic.' Something is missing here. If the standard of company accounts were the determining factor in the severity of financial crises then Asian markets should have suffered one wild panic after another 20 years ago and now be models of stability. People who have actually followed Asian markets over the past 20 years know that accounting standards have improved steadily and significantly.
It is true that some finance directors are adept at juggling their corporate accounts to present a falsely optimistic picture. But it does not happen in Asia alone and it is not always the case that nasty surprises are the result of previous manipulation. Could one really expect Bangkok retailers in the euphoria of 1996 to have published accounts foreshadowing insolvency in 1998? Such transparency is not given to mortals.
Much the same goes for economic statistics. If Mr Stiglitz wants data he can drown himself in the mainland's inflation analyses by province and product or Taiwan's and South Korea's industrial production breakdowns or even the details Malaysia publishes of financial institutions' balance sheets.
Some of it is undoubtedly suspect. It is an expensive business to amass all the economic data people want and poorer countries have to watch their budgets. It can also be more difficult to do than in developed countries.
Accurate retail sales figures, for instance, are easier to collect from big computerised retail chains than from mom and pop shops that keep their money in a bucket.
Yet, with the notable exception of Indonesia, the warning signals of the crisis Asia now suffers have been apparent from economic data for several years. Massive inflows of foreign capital in an environment of artificially supported currencies were reported every month by official statistics agencies.
If foreign investors now complain that this was not transparent in company accounts they can turn first to their own domestic banks which connived at hiding the details of their foreign currency loans to Asia.
It all reminds this columnist of an occasion during the roaring bull market in 1993 when, as an investment strategist, he had the temerity to ask a foreign client why that client was buying a Thai property company that amounted to a set of architect's plans valued at 2 per cent of gross domestic product.
His reply: 'I can't help it. Our Asian Tigers fund took in US$300 million this month and if we keep it in cash our clients will tell us they can do the same. I have to invest it fast because we promised to and that means anything we can lay our hands on so don't get in my way.' He no longer works as a fund manager in Asia but, if he did, he would probably say that his fund was hit by redemptions of US$300 million this month and he had to sell everything he could, even at bargain basement prices that would in other times have him drooling.
The fact is that in 1993 every investment periodical in the US and Europe was billing Asia as the new hope for world growth and the man on the street in Cincinatti listened. Now Asia is the black hole of world collapse and he is still listening.
The problem is not the transparency of data. It is the transparency of eyelids. You can't see through them if you have them closed. If you use your ears alone you leave yourself open to people who tell fancy stories you have no way of checking.
And the one story that appeals when things go wrong is entitled 'It's Not Our Fault'. This story has a big audience in Asia. It apparently now has one in the World Bank too.