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September 2017, No. 85


Global Economy

Four Asian Economic Architects

Turkey, India, Taiwan and Malaysia can be placed in the category of the countries that have been able to move from an unfavorable to a favorable status in the path of development over the past half a century. The common denominator of the experience of these countries in the path of development is presence of policymakers who can be described as the architects of economic development. Selection of these policymakers who enjoy both domestic acceptability and international reputation, in addition to elimination of friction caused by political conflicts, has increased acceleration of development under the influence of the power derived from financial and technical assistance of international institutions.

 Distinguished scientific backing, willingness to remove economic constraints, internal bargaining power, international relations, defendable executive experience in domestic or international economic institutions, sensitivity to run hard copies and refusal to reduce the level of demands to implement bad alternative programs can be considered as the common denominator of personal characteristics of these policymakers.

Moreover, a review of the experiences of these countries will show that support of the establishment, the opposition and the social body can be considered the prerequisite and the most important environmental components within which economic miracles have occurred. The following report takes a glance at the experiences of development in the aforementioned four countries and describes the characters of the architects of development.

A review of the experiences of the countries which have taken an upward trend in the corridor of development over the recent decades bespeaks a common story. One of these common characteristics is the presence of policymakers who have changed and modified pathogenic trends and have been able to initiate the path towards development in their countries.

A review of the development trend in Turkey, India, Taiwan and Malaysia will show that the denominator of these policymakers is the common traits which can be interpreted as the traits of development architects. Development planners in these countries have administered the affairs by reliance on accumulated executive experience and academic expertise and by taking advantage of the support of the government and backing of the social body and domestic opposition have been able to pave the way for economic miracle in their countries.

The miracle doers of the development path in these countries have not only been able to attract domestic support in the course of development by using the background and power of political bargaining, rather by using their international relations they took advantage of the support of international technical and financial institutions. Moreover, a survey of the acceleration experience in the development corridor shows that the overall political support and redesigning foreign policy based on economic needs have been other axes that have rendered great help to the economic architects in sketching and implementing the development map. This report by referring to the development experience in some Asian countries has outlined the components of development architects.  

Development of Turkey’s Economy under Kemal Derviş

Kemal Derviş has been named as the great architect of Turkish economy. In the early months of 2001 he was appointed the minister of finance. Derviş who took the helm of the Turkish economy by reliance on 22 years of activities in the World Bank, in the early stage of his ministerial responsibility was faced with great challenges. The gravity of Turkey’s problems in the late years of the 20th century and the early years of the 21st century was so much that experts described it the most serious crisis of modern economy in Turkey. But the former WB member, in the light of political support of (the then prime minister) Bulent Ecevit and the international relations he had developed at the time of his activity in the WB, could save the ailing Turkish economy and with the help of a three-year reform program brought the economy back to a healthy state.

In 1990s the ailing Turkish economy experienced high inflation rates. In the concluding years of 1990s the inflation rate exceeded 120 percent. In the early years of the 21st century, Turkey was entangled with a full-fledged forex crisis. In the second half of the 1990s, the value of the national currency dropped from eight cents to about one cent. In 2001 the value of one US dollar reached to about 1.650 million Turkish liras. Reform of the forex system in 2002 up to 2005 in that country led to the introduction of the new Turkish lira in 2005, bringing the value of one US dollar close to 3.4 liras. In the early years of the 21st century, the volume of the Turkish government debt was over 70 percent of the gross domestic product (GDP). But the program to control government’s expenditure resulted in a 20% drop in the volume of government debts between 2001 and 2006. 

Plan for Overall Containment of the Crisis

Although the Turkish government due to excessive debts had been warned by international institutions that it would not receive any more loans, the international relations and lobbying of the then finance minister of Turkey led to the receipt of $16 billion in loans from the World Bank. This provided Ankara an opportunity to undergo a reform program of international institutions and quickly come out of the unfortunate status of 2000 and 2001.

In less than nine months, Kemal Derviş succeeded in bringing down Turkey’s inflation of 70 percent to a one-digit figure. He believed that one of the most important roots of economic problems in Turkey was its increasing budget deficit. For the same reason, in the first step of the plan he implemented the reform plan to cut government’s expenditures. Sensitivity of Derviş in reducing Turkey’s costs was so much that he had to order the salary of government employees to be cut by 15 percent after saying: “I am forced to make a decision for which I would never forgive myself.”

At the time of accepting the post of minister of finance offered by the then prime minister of Turkey, Derviş adopted a plan on severe contractive policies and set one condition: The authorities must stand against protests by the business associations, guilds and unions. The then PM introduced Turkey’s reform plan as priority for execution by his government. Furthermore, the Turkish Parliament which followed the same line of thinking by the prime minister undertook the responsibility of legal support for Turkey’s reform plans. Also through his bargaining power, Derviş succeeded for the first time in bringing in uniting the leftist and moderate parties in Turkey for the solution of the country’s economic dilemma.

Kemal Derviş was a graduate of the London School of Economy (LSE) and Princeton University and had rich scientific backing. In the meantime, he had unique executive backing due to his performance in the World Bank. He managed to turn the Turkish ailing economy into one of the most fast growing economies in the development corridor.

Among the measures he took to save the Turkish economy mention can be made of the following:

·         Increasing the independence of institutions in monetary policymaking

·         Ceding large state companies to the private sector

·         Institutional reform with an aim of increasing the role of the market in the economy

·         Reconstruction of the structure of state-owned banks

·         Reducing the burden of the public sector in the economy

·         Increasing the independence of the Central Bank

·         Creating relative advantages in the field of trade, banking and public services

·         Introducing modern technology and knowledge for generating more revenues

·         Cutting the inflation rate  

The overall support of the then Turkish PM and Parliament for the reform plan, along with active and realistic foreign policy were levers which rendered great help to Derviş in removing obstacles on the way of sustainable development in the country. The 2.3 percent increase in the per capital GDP, reducing the inflation rate from above 70 percent to about 7 percent, dropping unemployment rate to 2 percent and increasing flexibility of the financial system against financial crisis were only part of this legacy in the quick development period in the Turkey’s economy. 

Manmohan Singh: The Father of Indian Reform

Manmohan Singh was sworn in as the finance minister to former premier P.V. Narasimha Rao’s government, which assumed office in June, 1991. At this point, the Indian economy was still functioning according to the Nehruvian-socialist agenda, which, with the external debt pegged at 23 percent of Gross Domestic Product and internal public debt amounting to 55 percent of the GDP, wasn’t faring too well for the country. Due to its functioning as a quasi-welfare state along with the existence of the license ‘raj’ – the elaborate system of licenses, regulations and accompanying red tape that was required to establish and run businesses in India between 1947 and 1990 – Indian employment rates had gone down to a negative. There was minimal economic growth, and the manufacturing sector was in bad shape.

The fiscal deficit was eight percent of the GDP, the account deficit stood at 2.5, wholesale price inflation had risen up by a good 13 percent and retail inflation went even higher up the bend by a whopping 17 percent. The Foreign Exchange Reserves standing at a low rs 2500 crores, was nearly 75 percent lower than what it was prevailing a year before, in 1990. To put it short, the economy was crippled, and there was a desperate need for a new set of norms that would change this.

However, it took the vision and resilience of one man who knew his job to change the whole face of the Economy. Singh had an extensive background in Business, Economics and Globalization, having obtained a doctorate in the same from Oxford University, with a stint in the United Nations for three consecutive years and another stint as an advisor in the Ministry of Foreign Trade. He also held the post of Reserve Bank governor (1982-1985) as well as chief economic advisor (1972-1976) and planning commission head (1985-1987).

But Singh was more than the credentials on his resume. He was tasked with scheduling the first budget that the new Rao government would release, in less than a month from his ascent into the central body. After evaluating the situation, Singh realized what the Indian economy needed desperately – a shift to economic liberalization and a strategic end to the ‘license raj’. 

Devaluation

He started with a two-step devaluation program in collaboration with the Reserve Bank of India (RBI), which was initially devalued against major currencies by nine percent and then brought down to eleven percent two days later. This naturally gave a boost to trade and dealings with the international market. 

Gold Holdings

The next thing he did was to get the RBI on board to mortgage India’s gold holdings with the Bank of England in four tranches, so that it could avail the necessary financial assistance it would provide. He did this in lieu of a similar action that the State Bank of India had undertaken earlier, selling 20 tons of gold to the Union Bank of Switzerland, for which they had received about $200 million. Keeping in mind the incessant demand and value for gold, this seemed to be a strategic route to gain resources. 

Dr. Mahathir: The Architect of Modern Malaysia

Malaysia is a country with a total landmass of 330803 square meters separated by the South China Sea into two similarly sized regions, Peninsular Malaysia and East Malaysia (Malaysian Borneo).

Most of the executive power of Malaysia is concentrated in the executive branch of the government. Most of the 27 million population of Malaysia prior to 1981 were busy in forests and villages with cultivation of banana, pineapple and rubber or fishing. During those years the poverty prevailing over the society and the per capita income of minus $100 had made life so hard for the people until in 1981 a surgeon by the name of Mahathir Mohamad came to their rescue.

Mahathir who held positions such as parliamentary deputy, minister of education and deputy prime minister in his political record became the fourth chief executive of Malaysia in 1981. With the coming to power of Mahathir Mohamad, one of the most important forces of friction in the path of development of Malaysia, namely the destructive political discord, gave its place to concentration on Malaysia’s development.

During his long years in office, he literally transformed the economy with the setting up of ambitious industrial goals which include the formation of heavy industries, national car projects and Multimedia Super Corridor projects. The North-South Highway was also completed during his tenure.

He grew the economy and was an activist for developing nations, garnering a following with his leadership, especially in some African countries. He resigned as prime minister in 2003.

As the country’s longest serving PM, Dr. Mahathir had a significant impact on the economy, culture and government of Malaysia. He won five consecutive elections and served for 22 years as the top political leader in the country.

Under him, Malaysia experienced rapid economic growth. He began privatizing government enterprises, including airlines, utilities and telecommunications, which raised money for the government and improved working conditions.

Malaysia had the fastest growing economy in Southeast Asia in the 1970s and 80s. In the 1970s, Malaysia was a young country with dependence on exporting raw materials such as timber, rubber, tin and palm oil. In 1970, commodities accounted for 70 percent of Malaysia’s exports, while manufactured goods accounted for less than 30 percent.

Resource-based industries in Malaysia have included rubber, timber, tin, palm oil, cocoa, silica, sand and clay. In the 1970s, Malaysia had a significant unemployment problem. Young workers lined to get jobs on rubber and palm oil plantations.

One of his most significant infrastructure projects was the North-South Expressway, a highway that runs from the north to the south of the peninsula, which transformed the way Malaysians travel and work.

From 1988 to 1996, Malaysia was having 8% of economic expansion. He released an economic plan — The Way Forward, or Vision 2020 — asserting that the country would be a fully developed nation by 2020.

He helped shift the country’s economic base away from agriculture to manufacturing and exporting, and the country’s per capita income doubled from 1990 to 1996.

To say that Tun Dr. Mahathir’s decisions, when prime minister, had affected Malaysians from all walks of life, is not an overstatement.

Mahathir also greatly expanded the number of secondary schools and universities throughout the country, and enforced the policy of teaching in Malay rather than English. This had the effect of creating a large new Malay professional class. It also created an unofficial barrier against Chinese access to higher education, since few Chinese are sufficiently fluent in Malay to study at Malay-language universities. He also greatly expanded educational opportunities for Malay women – by 2000 half of all university students were women. 

Tourism, Development Bridge of Malaysia

The not so high income of $900 million from Malaysia’s tourism industry along with special potentials of this industry, served as an incentive to encourage Mahathir to further concentrate in this field. To this end, he turned Japanese military garrisons which had remained in Malaysia since the World War II, into tourism sites equipped with different recreation, sports and cultural facilities so that Malaysia would become a venue for holding international car racing, horse riding and water games. He also made Kuala Lumpur the main seat for the Asian Football Confederation. With such measures after a period of 10 years the revenue of tourism industry increased by more than 10 times amounting to over $34 billion in recent years.

In 1996, with a growth rate of 46 percent in comparison with the previous years in the electricity and electronic industry, Malaysia became an exporter of electricity and electronic appliances. Mahathir, by ordaining transparent rules and precise regulations, opened the doors to foreign investors and by founding the Petronas giant company in the Kuala Lumpur Twin Towers laid the foundation of the securities market with a daily transaction of 2.9 billion dollars. Establishment of the world’s largest Islamic university is another step taken for the attraction of domestic and foreign scientific elites from throughout the world, especially the Islamic states. Mahathir transferred a poor country with per capita income of $100 into a country with per capita income of $1600 and increased investment from $3 billion to $98 billion and exports to an impressive figure of $200 billion. 

The Man behind ‘Economic Miracle’ in Taiwan

The International Monetary Fund in a survey of ups and downs in Taiwan’s economy in recent decades has considered the process which has been taken in the economy of the country as an example of an economic miracle. Many experts have named “Kwoh-Ting Li”, a Chinese economist, as the architect of this great miracle. 

The father of Taiwan’s economic miracle who between 1955 to 1976 consecutively served in the two key positions of finance minister and economy minister by adopting and implementing efficient economic policies managed to turn Taiwan’s economy which was previously a small-scale traditional economy based on agriculture into one of the most powerful economies of the world in the field of technology and communications.

In 1950, Taiwan with an average annual income of less than $1,000 stood lower than countries like Ghana, Peru and Morocco and was one of the relatively poor countries in South East Asia. The country’s policymakers after the defeat in the battle of China decided to compete with their northern neighbor at least in economic terms.

For this reason, a set of corrective measures led by Kwoh-Ting Li was placed on the agenda of policymaking. Li also took the responsibility of compiling the long-term development plan in Taiwan. Perhaps it could be said that one of the most important factors for Taiwan’s success in implementing reformist economic policies is the feeling of the common need that had taken shape among policymakers of the country.

With the coming to power of Li who was spending the early years of his graduation from the prestigious University of Cambridge, a change in look at the development took shape among the Taiwanese policymakers. This change in look manifested its effect in the change in the deterrent force caused by political conflicts to the driving force resulted by the participation of Taiwan’s political parties and the citizens on the path of development.

In the first step, Li took measures for amending territorial laws and stimulating Taiwan’s economy towards industrialization through supporting small enterprises with early returns. Then, in cooperation with other Taiwanese policymakers he took measures for making public education mandatory for all people at elementary level. Parallel to these measures, the then government of Taiwan provided the necessary ground for economic acceleration through development of economic infrastructures such as the Taiwan freeway platform.

Taiwan, which is now being discussed as a model for economic growth, at that time modeled development policies in the United States and for this reason while there was not an accepted concept for free economy in nearly half of the world countries, policymakers of this country in 1960s approved the law for liberalizing the economy and implemented it step by step.

Experts believe that implementation of the following were among the most important policies that under the leadership of Li could increase the per capita income over 2.3 times in less than 20 years:

·         Very high rates of savings and investment

·         Composition of constructive foreign influence and transmittal of business ideas from Japan and the United States

·         Effective strategy for public industrialization

·         Liberation of human energy and creativity through open market

·         Economic boom of 1960s resulted by the Vietnam War

·         Strategy of growth based on exports in the period of rapid economic growth in early 1960s

·         Direct assistance of the United States and use of the country of the aid for making investment and not for consumption

·         Work ethics and production attitude of Taiwan work force

·         Leap towards creating enterprises for the powerful local islanders who were looking for an opportunity to make progress

·         Necessity for economic development as a defensive matter against the attack by the People’s Republic of China 

Taiwan’s economy made an increase of 7% per year during 1960 to 1970 which was faster than the growth of any other countries. This growth rate was realized only in the light of convergence of the Taiwanese policymakers with the reform programs of a prominent economist.

 

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