A seminar to discuss structural adjustment in a region that is at times seen as becoming a pivotal part of the global economy in the twenty-first century is likely to be quite exciting. The task of being a moderator for such a seminar is a privilege and deserves some reflection. Indeed, the structured functions of the moderator need to be adjusted through at least five phases of the seminar.
I am very pleased to be here this morning to officiate the opening of the International Monetary Fund Seminar Program for Non-Officials. As co-host, I would like to take this opportunity, on behalf of Bank Negara Malaysia, to extend a warm welcome to all participants and observers, particularly those of you who are visiting Malaysia for the first time. I note from the program that you have a heavy agenda before you. Nevertheless, I do hope you will take some time off to see what you can of our country and to enjoy our Malaysian hospitality.
The debt crisis that emerged in the early 1980s forced many countries to reconsider their development strategies. Many had embraced international borrowing as a way to boost investment levels, despite low rates of domestic savings. Some countries and regions in Asia, such as Korea and Taiwan Province of China, were extremely successful. Korea, in particular, raised huge amounts of international capital, which it invested in efficient operations and used to spur the growth of export-oriented industries. Latin American countries were far less successful. They succeeded in building large domestic industries but were unable to manage their debts. As a result, their indebtedness brought them exchange depreciation, inflation, and stagnation.
In the context of Fund-supported adjustment programs, there is now much discussion of growth-oriented adjustment. This involves the integration of traditional short-term adjustment—essentially the correction of external and internal imbalances through aggregate demand management—with longer-term structural measures aimed at stimulating the supply side of the economy. The Fund has been criticized for not paying enough attention to growth; the most common claim is that the fiscal and monetary policy prescriptions that characterize short-term adjustment programs are inimical to growth, and that this reflects inadequate concern. A similar line of reasoning is used by those who argue that the Fund has lacked concern about the social implications of adjustment, and in particular its impact on poverty and inequality.
The decade of the 1970s will be remembered as one of economic turbulence. It caused profound changes in the structure of world trade, the consequences of which were felt by all countries until the end of the 1980s. Starting with the breakdown of the Bretton Woods system of fixed exchange rates in the early 1970s, followed by sharp rises in the prices of oil and most other commodities, inflationary pressures were building toward the end of the 1970s. Economic growth generally slowed down from the high rates of the 1960s.
Over the past two decades rising economic performance in the developing countries of East Asia has propelled the region into growing prominence and has raised important questions regarding the role of economic policies in that performance. Annual growth rates since 1965 have averaged over 7 percent. Exports have surged, more than doubling their share of output. The extent of such generalized vitality is unequaled by other regions. Given the resource, cultural, and other diversities of the various countries, evidence regarding a model for structural adjustment may be derived from differences in economic performance and policies.
This paper discusses some general, important principles of economic policymaking, illustrates their application in some of the Southeast Asian economies,1 and discusses several economic issues that are coming to the forefront of the policy debate in some countries in the region. The paper is organized around the theme of “successful policies for structural adjustment.” Structural adjustment can be defined as the creation of conditions for sustained, noninflationary growth, and the elimination of impediments to the full and efficient use of resources. Furthermore, adjustment must permit the attainment of certain basic, and widely shared, social goals.
After decades of development efforts, countries once called backward or undeveloped find themselves not too better off than before. Setting out with strong determination to eradicate poverty and bring about income equality, and after drying up foreign financial assistance, they have only been able to marginally narrow the gap between themselves and the economically advanced countries. Today, they are still classified euphemistically as developing countries. Only a few have been promoted to the rank of “upper middle-income” group by the World Bank. Included in this group are the Asian newly industrializing economies comprising Korea, Taiwan Province of China, Hong Kong, Singapore, and Malaysia—to name only those in east Asia.