Why Asia's sympathy for Greek debt crisis only extends so far
Lee Jong-Wha says Asia's harsh experience of an IMF-led rescue during its 1997 crisis stands in sharp contrast to the generous treatment being given to Greece today. Yet, the region was able to recover much more strongly
Asian countries have been watching the Greek crisis unfold with a mixture of envy and schadenfreude. When they experienced their own financial crisis in 1997, they received far less aid, with far harsher conditions. But they also recovered much more strongly, suggesting that ever-growing bailouts may not be the best prescription for recovery.
Since the onset of the crisis, Greece has received massive financing from the so-called "troika": the European Commission, the European Central Bank and the International Monetary Fund. It received bailout packages in 2010 and 2012 totalling €240 billion (HK$2 trillion). The latest deal promises up to €86 billion on top.
By contrast, South Korea's 1997 bailout package - which was larger than those received by Indonesia, Thailand or the Philippines - totalled US$57 billion. At the time, South Korea's annual gross domestic product was US$560 billion; in 2014, Greek GDP amounted to less than US$240 billion.
The IMF seems to have lent Greece such a large amount for political reasons. Major IMF shareholders, the European Union, and the US have a vital interest in stabilising Greece to safeguard French and German banks and preserve Nato unity.
To be sure, the economic mess created in Greece - the result of government profligacy, official corruption and widespread tax evasion - merited some international assistance. And the IMF did impose conditions on its loans to Greece, most of which were necessary to address the country's insolvency. The requirements of the latest rescue deal are the toughest yet.
But the scale of the aid remains massive, especially when one considers how little progress Greece has made in implementing the reforms it promised in the past. This contrasts sharply with Asia's experience in 1997.
Unlike Greece, Asia's problem was not an insolvency crisis, but a liquidity crisis, caused by a sudden reversal of capital flows. Though substantial short-term debts in the financial system and corporate sector did amplify the shocks, the primary factors fuelling the crisis were the lack of international liquidity, panicked behaviour by investors and financial contagion.
