The speedy recovery from the Asian financial crisis may have hindered crucial economic and financial reforms in the region, said Harold Brown, former US defense secretary, who is now a senior partner with venture capital firm, EM Warburg Pincus & Co.
"Indeed, the rapidity of the recovery had a negative effect," Brown said yesterday during a luncheon speech at the American Chamber of Commerce in Taipei. "It has inhibited reforms in the region."
While real reforms must be carried out in these countries if they want to ensure long-term prosperity and stability, he warned of the equally disastrous consequences of ill-considered economic liberalization.
The economic opening measures must be pursued in tandem with internal reforms, Brown said, admonishing in particular the hazards of short-term capital flow.
Recent evidence in the crisis economies suggests that "short term capital flows are dangerous," he said, advising Taiwan to pursue "parallel reforms" -- which is to strengthen internal financial systems before throwing open its economy.
While the Asian economies are continuing to grow steadily, the trouble in Japan may threaten Asian prosperity, Brown pointed out.
"The real worry is Japan," said the former US defense secretary between 1977 and 1981 under president Jimmy Carter.
The "decade-long stagnation" in Japan, which may aggravate further, coupled with the American slowdown may force Asian economies to grow at a slower rate this year, Brown predicted, in his capacity as a banker and venture capitalist.
And the US recovery may turn out to be a "short U," a protracted recession, rather than the widely expected "V-shape," an abrupt recovery after hitting the bottom.
Brown said Taiwan must move up the technology ladder if it wants to face future challenges from China, just as the US underwent a major restructuring in the 1980s to cope with a more competitive global economy.
While the hollowing-out of manufacturing in Taiwan is creating unemployment and a migration of local companies to China, moving up the value-added chain could create jobs that require more "intellectual, managerial, and research and development" capabilities, he said. "Taiwan must move into still higher-tech activities."
On the domestic political front, "disarray in Taiwan politics" -- the ongoing friction between the legislative and the executive branches of the government -- is causing concern.
With regards to Taiwan's relations with China, Brown predicted that the differences between the two sides may not be ironed out until the issue of a successor to China President Jiang Zemin (
"No one will become the chairman of the Communist Party of China by saying that I don't care what happens in Taiwan," he said.
But the 16th People's Congress of the Communist Politburo may change the "complexion of the political leadership" in China, he said.
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