This episode of Woo Says is Part 3 of the mini-series on the Asian Financial Crisis of 1997–98, where Professor Emeritus Datuk Woo Wing Thye and Hafiz Marzukhi turn to Indonesia, a country hit hardest by the storm.
00:00This week on Wu Says, we looked into the third part of the mini-series on the Asian financial crisis of the late 1990s.
00:08The third episode explores the lessons learned from Indonesia.
00:12Here's a segment from the conversation with Professor Emeritus Datuk Dr. Wu Wengtai.
00:18So, the first lesson is, the right policy to do depends on the circumstances of the country.
00:25Basically, you can't copy what your neighbours are doing.
00:30Even if the problems are solved.
00:33Yes.
00:33So, that is the first lesson.
00:39The second lesson to draw is that we must recognize that financial markets sometimes misbehave badly.
00:53And financial markets misbehave.
00:57The governments have to be able to step in to address it.
01:02In this case, suppose money is running out.
01:05Malaysia stopped it with capital controls.
01:08Another way to address this is that the government has enough reserves to meet the outflow, the way that Hong Kong did.
01:20So, how do you have enough reserves?
01:24That's why a regional bank is exceeding a regional financial fund, like Asia Monetary Fund, would have been very important.
01:39Because we can't afford to pull the reserves of all the ASEAN countries together.
01:48And now the Chinese, Japanese, and Koreans have joined it.
01:53We have enough reserves to be able to defend the currencies of ASEAN.
02:01So, the second important thing is, it has enhanced regional cooperation in ASEAN.
02:08Because we recognize that the economic disease could spread from country A to country B, which we recognize again during COVID-19.
02:18Yeah, clearly.
02:20And that is a bit more literal, right?
02:22Literal.
02:22Yeah, exactly.
02:25And the third thing is, the political institutions really matter.
02:34When, if an economic crisis were to precipitate a political crisis, then the consequences of that economic crisis would be much more severe than a country that did not experience a similar political meltdown.
02:56In a previous episode, I had talked about, if you look at the profile of GDP growth rate, what happens is, when the financial panic happens, output collapse.
03:11So, you know, a shock collapse, the moment the panic is over, there's a quick recovery.
03:18So, there's a big V-shape.
03:20In the case of Indonesia, it was a long-drawn-out U-shape.
03:27And the U-shape is not because people have to move from one industry to another, unlike structural adjustment.
03:38The U-shape is because of the political fight that was happening in the country.
03:48And political instability naturally reduces low economic growth.
03:57Catch the full conversation on Awani International and across our social media platforms.
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