Introduction

In the 1980s and 1990s, a set of liberal reforms was implemented in many developing countries. The effect of these policies on growth is a matter of considerable controversy. Rodrik (2004) recalled that in Latin America, for instance, fiscal discipline, privatization, and openness to trade have resulted in much poorer economic performance than that experienced under import substitution. Today, after several crises in emerging economies and somewhat disappointing growth rates, most observers agree that one-size-fits-all reform recipes—that is, to stabilize, liberalize, and privatize—were insufficient.

In many ways, one may regard the East Asian crisis as one more episode in the story of failure of that "orthodox" and simplistic reform agenda. The most-affected countries—Indonesia, Republic of Korea, Malaysia, and Thailand¹—were among the most rapidly growing economies in the world. Just before the crisis, in 1996 growth rates for these economies ranged from 5.9% in Thailand to 10% in Malaysia; in 1995, the lowest rate of growth among these four economies was 8.4% in Indonesia (Table 1 [ PDF 173KB | 1 page ]). Moreover, the so-called Asian tigers had remarkable economic indicators (Table 2 [ PDF 118.2KB | 1 page ]). Inflation and fiscal deficits were low. Ambitious privatization programs were undertaken in Indonesia and Thailand. In addition, by then, the four countries had already discarded the pure import-substitution strategy of the 1960s in favor of policies promoting trade openness. And, also in accordance with the above-mentioned conventional agenda, their capital accounts were liberalized.

Many complementary reforms, however—good bankruptcy laws, social safety nets, and adequate investment in infrastructure, for instance—were not put in place. These missing links are important to explaining the impact of the crisis in the different countries and the speed of their respective recoveries. Using the East Asian crisis as a case study provides an opportunity to analyze immediate responses and growth trajectories after an event and pre-event situations that were, in general terms, similar in the countries considered here.

The remainder of this paper is divided into two sections. The first section reviews—at both the theoretical and empirical levels—some of the literature on the importance of policy complementarities for growth, and discusses its implications in terms of growth strategies in tandem with the emergence of a new, more open, and realistic policymaking paradigm. The second section provides an introductory approach to the issue of (missing) policy complementarities in the four countries being considered (section 3.2), sketches a stylized picture of the recovery process (section 3.3), and presents a comparative analysis relating immediate resilience and recovery speeds to computed policy indicators (section 3.4)—focusing especially on a complementarity indicator and a reform-level indicator adjusted for complementarity. The paper ends with a brief synopsis and some final thoughts.

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms..

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