This is not 1997

PUBLISHED : Friday, 03 October, 2008, 12:00am
UPDATED : Friday, 03 October, 2008, 12:00am

Anyone asleep since the Asian economic crisis and only now waking up could be excused for noticing similarities. Stock markets are again in turmoil and banks are tumbling. But a look behind the headlines tells another story: the world is a quite different place. It is easy to be fooled into thinking we've seen it all before, even though the underlying principles and focus are different. Between October 20 and October 23, 1997, the Hang Seng Index plummeted 23 per cent. Currencies had for months been in turmoil. Within days, Wall Street was nosediving, taking the rest of the world's markets with it. On November 1, 16 Indonesian banks closed and, within weeks, the rot had spread to South Korea.

Then, as now, the natural reaction was to turn to governments for help. Pour billions of dollars into financial systems and all would be right; such was the case in Hong Kong which, with US$80 billion in reserve, could afford to take such action. But few other Asian economies had such resources, nor did the world's self-proclaimed expert on democracy and free markets, the US, advocate such a course. Throughout, it lectured governments not to bail out ailing financial institutions.

A decade later, and that is exactly what the US is doing to deal with its own financial woes. European governments are following suit. The developed world may have finally seen the light and realised that stopping financial contagion is sensible, but the world has had to be turned upside down to come to such a point.

Oil prices have more than quadrupled since 1997. The US dollar is now held in low esteem. Liberal governments have been replaced by conservative ones and the left-leaning ones still in power are close to the centre of the political spectrum. Global warming has gone from being a hotly debated issue to an accepted problem that must be tackled. Some things never change, of course. A deal to stop North Korea's nuclear programme would seem to be unravelling, just like the one brokered by the US in 1994. Iran and the US remain bitter enemies. Israel and the Palestinians can still not be convinced that it is in both their interests to reach an amicable agreement. The threat of conflict over Taiwan has not dissipated.

Nor would the world's most powerful nation, the US, seem to be better off for a decade of policies. The stock market is shifting back to similar territory, the wages of ordinary Americans have barely moved and the value of their homes is reverting to 1997 levels. Democratically elected governments are supposed to offer progress. No wonder the theme of the US presidential campaign is change.

But perhaps the most startling sign of the new environment was the interview Premier Wen Jiabao gave to CNN on Sunday. Chinese leaders rarely let their views be known in such a way. Suffice to say, what was said was stunning. Here was a leader from the world's foremost communist country in New York preaching about the father of modern economics, Adam Smith.

Mr Wen trod the well-worn Communist Party line when questioned about Tiananmen Square, democracy, Tibet and intervention in the affairs of other countries. He veered in an unexpected direction when the subject of China's economic miracle was raised. Showing a sound grasp of Smith's theories, he told interviewer Fareed Zakaria through a translator that China needed to ensure that 'both the visible hand and invisible hand are given full play in regulating the market forces'. Mr Wen cited Smith's best-known books, saying that their theories were essential for China's development. Morality and ethics, social equity and justice, and the role of the government in regulating markets were mentioned. The solution to the US economic crisis lay in Smith, he instructed.

There can be no better proof that the world is not as we know it. Answers do not lie in 1997, the stock market crash of 1987 or the Great Depression. For those wanting to see a way out of the financial mess, a safer bet would be to look for a reputable reader of tea leaves or crystal ball gazer.

Peter Kammerer is the Post's foreign editor