Central Asia Looking toward China

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

South China Morning Post
11/24/03
>
> Banking on the Xinjiang model for Central Asia
> by Laurence Brahm
>
> On November 14, the International Monetary Fund and
> the World Bank were out in force at Kazakhstan's
> conference on financial system reforms. But nobody
> in the central Asian republic was interested in
> their proselytising. Instead, attention turned to a
> new guest - Zhou Xiaochuan, governor of the People's
> Bank of China.
>
> Central Asia is now looking towards China as a
> realistic role model for economic reform, based on
> pragmatism, not ideological fundamentalism. The
> Washington Consensus prescriptions are now
> caricatured as "voodoo economics", representing
> formulas for cyclical poverty, not development.
>
> Following the collapse of the Soviet Union, the six
> central Asian republics followed the IMF policies of
> overnight privatisation, freeing up prices,
> exchange-rate convertibility and cutting government
> resources. Throughout the 1990s, US diplomats
> praised them as beacons of free-market reform.
> Today, they are economic disasters.
>
> The central Asian republics are desperate for a new
> development strategy. At the time of the Soviet
> Union's break-up, they were middle-income states,
> while neighbouring Xinjiang province, in China's
> Muslim northwest, was a low -income region. A decade
> of different economic policies reversed that. Now,
> Xinjiang is their new role model.
>
> It has enjoyed a decade of 8 per cent gross domestic
> product growth, on average, compared with negative
> growth in Kyrgyzstan, Tajikistan and Turkmenistan,
> while Uzbekistan and Azerbaijan recorded minor GDP
> rises. Simultaneously, life expectancy in Xinjiang
> rose, while it dropped in the republics.
>
> Kazakhstan has faired better, with 2.5 per cent
> growth, largely due to its oil reserves. But life
> expectancy has dropped from 68 in 1990 (in Xinjiang
> it is now 67) to 61 last year - the same as in
> Bangladesh. Kazakhstan has already demanded that the
> IMF get out of the country, and has embarked on
> economic policies based on the Chinese and Malaysian
> models.
>
> The IMF and World Bank policies involved widescale
> privatisation of industries, without laying down the
> necessary infrastructure or taking into account
> management transition. In Kazakhstan, the sudden
> privatisation of state-owned farms left people
> asking: "Where does our fertiliser come from? Where
> do we sell our produce?" In Kyrgyzstan, the
> privatisation of state-owned banks ruined the
> banking system, while debt rocketed.
>
> Uzbekistan is following Kazakhstan, looking towards
> an Asian model. Turkmenistan has also given up on
> IMF policies.
>
> The Washington Consensus free-market ideologues
> believe that if a government spends, the private
> sector suffers. What they failed to understand is
> that China's private sector - with an annual growth
> rate of 25 per cent - is building on infrastructure
> laid down over two decades of government spending.
> One should question how western economists could
> insist on choking government resources in developing
> and transitional economies when America effectively
> supports its own growth through government deficit
> spending. By insisting on cutting government
> resources in developing countries, Washington
> Consensus policies effectively emasculate those
> governments. While the parallel growth of guerilla
> and civil wars in Africa and Latin America may not
> be the direct result of such policies, it is
> certainly open to debate.
>
> The central Asian republics are actively seeking
> advice from people like Ramgopal Agarwala, chairman
> of the US-based International Development Policy
> Institute, who was the World Bank's chief economist
> for China between 1993 and 1996. "In 1991, China's
> 12 years of experience was simply ignored," he said.
> "There was no intellectual excuse for this." The
> Washington Consensus mindset then, as now, was "we
> have to be right".
>
> Political and ideological motivations cannot be
> dismissed as a contributing factor, Mr Agarwala
> notes. Strategists in Washington probably thought it
> was too good an opportunity to miss to change the
> way nations function. Inevitably, by creating new
> poverty, political opportunities arise to control
> resources. "The geopolitics we can understand, but
> as economists, we must cry because we have brought
> about so much misery from our policies," said Mr
> Agarwala. "It is painful to go back to these
> countries and see the slums that have been created."
>
> There is a sadness in how similar policies are now
> being applied with equal conviction to Iraq and
> Afghanistan. Some see the future as obvious. Others
> do not. Who is going to be next?