Lessons from East Asian Financial Crisis Speech of H.E. Chuan Leekpai Prime Minister of Thailand Hosted by the Council on Foreign Relations and the Asia Society New York March 11, 1998
Excellencies, Distinguished Guests, Ladies and Gentlemen
I would like to thank the Council on Foreign Relations and the Asia Society for hosting this reception. I also would like to thank all the distinguished guests for honoring me and my delegation with your presence here this evening.
I am very delighted to be back in the United States, back to a great country that has always held a special place in the hearts of the Thai people.
Ours is a friendship which goes back 165 years, back to 1833 when Siam became the first Asian country to establish diplomatic ties with America. It is a friendship which has withstood the challenges of time, distance and differences. It is a friendship which, over the years, has become a partnership for peace and prosperity. And, I am proud to say, it is a friendship which is now based upon a growing convergence of values, especially those related to democracy, freedom, social justice and the rule of law.
Last year has seen a dramatic reversal of East Asia's fortune. In the space of a few months, many of the region's "miracle" economies became embedded in crises or near-crisis situations. Almost overnight, optimism was replaced by prophecies of doom. Unfortunately Thailand was the first country to experience this reversal of fortune. And presently, we are going through a very difficult period of adjustments.
But from day one of my present government, I have insisted that responsibility is the key. I have insisted that we must be brave enough, courageous enough, to face up to our responsibilities. We must know what we did wrong, and we must seek to put things right. Nor can we put things right, if we do not help ourselves first and only expect others to help us.
What went wrong? During the period of rapid economic growth, we were too complacent. In the good times, we forgot many important truths and neglected many important tasks.
- We opened up our economy, but our stated plans to pursue discipline were not followed up;
- We attracted massive flows of cheap foreign capital, which we did not always spend or invest with enough prudence in spite of our original plans to channel funds to productive investments;
- We created wealth but were perhaps negligent in creating competitiveness;
- We were successful in our economic performance, so much so that we did not examine the fundamentals of our politics and governance or tackle issues such as the bureaucratic inefficiency, lack of transparency and lack of accountability;
- We became a part of the globalized world and felt proud to belong to the twenty-first century, while much of our law and governance and many of our instruments for macro-economic, financial and business management are waiting to be modified, modernized, and upgraded to international standards and practices.
There is immunity in success. As long as we continued to succeed, this complacency could go unpunished. But once the cracks appeared, we compounded the mistakes by committing much of our fiscal reserve to shore up insolvent finance companies and our foreign currency reserve to defend the baht. Naturally, we were quickly and severely disciplined by the market.
When my Government took office just over four months ago, my colleagues and I were fully aware of what we were up against. Yet we never felt that our cause was hopeless.
We knew that there was much that was right and still is with our country: constitutional monarchy; democracy; free press; social stability; a strong and competitive agricultural sector making us one of the world's five net exporters of food; a very large pool of experienced managerial talents and potentially dynamic entrepreneur ship; an adaptable and hard working labor force; a good natural resource base; and networks of friends and partners both in the region and beyond.
And we knew that there are very few things in life which hard work and honesty cannot accomplish.
Of course, we are not the best judges of our own performance. But I honestly feel that in the last four months we have moved in the right direction. Our relationship with the International Monetary Fund is key to the revival of market confidence and economic recovery. We see commitment, consultation and transparency as the cornerstones of this relationship.
We have fully met the IMF's requirements to strengthen our fiscal, monetary and financial discipline, by making the tough decisions to reduce our expenditure, to raise taxes, and to close more than half of all our finance companies. Preparations are also underway for the further recapitalization and regulation of the financial and banking sectors, as agreed upon. In some areas, notably on reducing the current account deficit, we have even exceeded the set targets. The Finance Minister has kept the IMF fully informed of our progress, providing its officials with all the necessary facts and figures. On the basis of such consultation, the IMF has only last week approved our third Letter of Intent, which outlines modifications of budgetary and other provisions to make them more consistent with changing domestic and regional realities.
Knowing that that reforms entail a painful adjustment process and that these reforms, together with the economic downturn, will have adverse social impacts, my Government has also worked closely with the World Bank, the Asian Development Bank and other institutions to strengthen our existing social safety nets. Measures include a number of provisions for extensive retraining and retooling programmes. With unemployment certain to rise in the short term, we can not depend only upon the cushion provided by our traditional extended family networks and the absorptive capacity of the agricultural sector. Special consideration has therefore been given to the poor, the unemployed, and the disadvantaged.
Reform is not only a matter of commitment to the IMF's conditions. It is also for our own good in the longer term. To this end, we have been making extensive preparations for strengthening and modernizing the legal and institutional fundamentals of our economic development. A number of legislations are being processed. The new bankruptcy bill has recently been approved by parliament and we are expediting bills on other issues, ranging from better foreclosure procedures to the fight against money-laundering and to the amendment of the alien business law to make Thailand an easier place to do business. A massive privatization of state enterprises is also being accelerated. Moreover, plans are being implemented to upgrade accounting practices and instruments for the supervision and regulation of the financial and banking sectors to international standards.
The most crucial component of reform is, of course, political reform.
Clean politics is wise politics.
It enables the country to avoid costly mistakes and to revive and sustain market confidence. We believe that good governance, great transparency, greater accountability, and greater popular participation in public affairs are necessary to bring about, not only economic recovery in the short term, but also strong, more stable economic growth in the longer term. And while we may not be able to make everyone equally rich and prosperous, we can and must provide every one with equal rights and opportunities, especially before the law. To this end, my Government is going full steam ahead with the process of political reform, which had been started by the passing of the new Constitution in October 1997. By this year's end., substantial progress will have been made in all the draft laws required by the Constitution.
Yes, I believe we are moving in the right direction. But reform, rejuvenation and recovery will take time to complete. A great deal remains to be done. At this juncture, the immediate priorities must be further stabilizing the baht, creating liquidity for the private sector, increasing foreign exchange earnings, and caring for the poor and unemployed.
And yes, we must go on doing all we can to help ourselves. For, as I said before, we must have the courage to face up to our responsibilities.
However, it is a fact of life that, in the globalized world we live in, the fates of nations, the fortunes of societies, are inter-dependent. No country can determine its own destiny entirely.
We will do our best, but our best may not be good enough if our friends, partners and allies do not lend a helping hand.
We need time and space, time and space to work ourselves out of the present crisis and to become once more a contributing force to global prosperity, time and space which only our creditors can give us.
We need from potential investors honest and informed appraisals of our present and prospective performance, not those based upon hearsay and emotions.
We need support for retraining and retooling our labor force, so that the economic and human costs of the present crisis can be kept in bound.
We need assistance, so that we ourselves can lend a helping hand to those who suffer most from the present crisis - the poor, the unemployed, the less educated. And we need all members of the international community, especially members of the G7/G8 who represent much of the world's economic might, to look long and hard at all the existing global systems, so that they can be reformed and rejuvenated where necessary to ensure that the new growth cycle will be equitable and sustained.
To a certain extent, countries in the Southeast Asian region have learnt their hard lessons from the current crises. The so-called "penalties of capitalism" have already taken their toll. They are going through an adjustment process. However, their fundamentals are still relatively strong. I believe that eventually all of them will bounce back - although at different paces, in slightly different ways, according to their respective sets of circumstances. They are all determined to cross over these "troubled waters" by accepting great pains and sacrifices. They deserve your sympathy, your support and your respect.
It is my hope that East Asia's financial and economic crises do not spread to other parts of the world, as they will surely do if left untreated. The world is too inter-dependent for any one to remain immune forever.
It is my hope that the international community will use these crises as an opportunity to learn, to gain valuable experiences, and to make preparations to make sure that such tragedies will never happen again so that liberalization, which I firmly believe to be the right path, can proceed in countries like Thailand in consonance with global trends.
It is also my hope that our friends and partners will assist us during this critical period of economic adjustment, building upon the momentum we have already started as we turn the corner.
We in Thailand will play our part in the making of a better world.
We are confident that we can do so.
One of history's greatest statesmen once said, and I quote, "The future is not for parties playing politics... We are witnessing a renaissance of public spirit, a reawakening of sober public opinion, a revival of the power of the people, the beginning of an age of thoughtful reconstruction... With the new age, we shall show a new spirit."
The statesman was President Woodrow Wilson. The year was 1910. The country referred to was America.
I also believe that President Wilson could have been talking about Thailand in 1998.