You will hear a part of a speech about the Asian crisis. Choose the best answer

What effect will the crisis have on longer-term economic growth and structural change? The crisis has dislocated the use of resources, but it has not negated the years of human and physical capital accumulation and institutional development. Many of the conditions which supported sustained rapid growth will remain in place: high savings and investment; emphasis on education acceptance of a major role for markets in resource allocation deep integration into the international economy; and, after a while, the self-reinforcing character of internationally-oriented growth across neighbouring economies.
    It is possible but not certain that the international orientation of East Asian economies will have been enhanced by the crisis. The initial round of crisis-induced policy reform, reinforced by the IMF programs, will make markets more effective in allocating resources. In Indonesia in particular, the market-oriented reforms within the IMF agreement are far-reaching. The question is whether these reforms will survive recovery, or whether they will be discredited as arrangements imposed from outside when East Asian developing economies were weak.
    Two of the preconditions of growth in the old East Asian style have obviously been lost for the time being a reasonable degree of macroeconomic stability and political coherence around the growth objective.
    If the current stabilization programs are successful, the prospects for future economic stability will have been enhanced. Exactly the same mistakes will not be made again. There will be greater caution at signs of inflationary pressure and payments imbalances. In the troubled countries, there is unlikely to be a return to the hybrid exchange rate regimes that were in place at the onset of crisis. The choice will be between a floating rate and a rigidly fixed rate in the Hong Kong style.
    The restoration of political coherence and stability around the growth objective is facilitated by constitutional and political arrangements that support reasonably smooth political change in Thailand, Korea and Malaysia. The challenge is greater in Indonesia.
    In the years leading up to the crisis, the more advanced among the troubled economies were experiencing pressures for rapid change in economic structure and export specialization to support continued economic growth. Korea was grappling with reform of the chaebol to support the more intensive innovation, flexibility and competition that is necessary in a high-income advanced economy. Malaysia was experiencing success in graduation from labour-intensive to more technologically complex production, but faced shortage of high-level skills and, in the meantime, needed institutional reform in order to use efficiently high levels of foreign skills and technology. Thailand had exhausted the potential for extensive growth based on absorption of surplus agricultural labour into modern industries, and needed high investment in education of a fairly basic kind to effect a change in comparative advantage to support continued rapid growth.
    The pressure for structural change has eased for the time being. But with the rehabilitation of financial systems, the expected strong performance in the export industries and the consequent appreciations of real exchange rates as recovery proceeds, the pressures will return. Continued strong growth from that time will depend on the progress that is made on the structural issues in the troubled years.
    For East Asian developing economies on the edge of the crisis, contagion and demonstration effects will be important. China’s intention to hold the value of the yuan for some time near its current rate against the dollar will be challenged by the restored competitiveness of Southeast Asian economies in labour-intensive industries. China will need to continue the structural reform and investment in skills that is necessary to support the graduation of its higher-income coastal provinces into more advanced patterns of export specialization. The holding of its current exchange rate would be facilitated by real appreciation as East Asian risk premises ease in recovery.
    Vietnam looks more vulnerable to adverse effects in the medium term. Current account deficits as a proportion of GDP have been larger in Vietnam than in any other major Southeast Asian economy in recent years. Contagion makes the deficits more difficult to finance. Structural reform would seem to be an urgent requirement, and yet the crisis might seem to argue for caution in internationally-oriented reform. Vietnam will face immense problems if it draws the wrong lessons.
    The shock of 1997 is a defining event in the economic history of East Asia. Like the Great Depression in the West, it has the capacity to change thought about economic development and economic policy in fundamental ways.
    It was always the case that industrial policy directed by "money politics" was a drag on East Asian growth, although this was a hard case to argue in the happy years (Smith 1995). For the moment, the crisis has reinforced the need for competitive markets and transparent regulatory arrangements. It has discredited government direction of subsidized resources to favoured enterprises, which some had argued was an ingredient of East Asian success.
    Everywhere, there will be lingering questions about the wisdom and timing of opening the capital account and about the associated reform that is necessary to make the opening successful. For those more developed Asian economies, the lessons of crisis will mainly be about the systemic reforms that are necessary for an open capital account to be consistent with reasonable stability. Others will be cautious about moving ahead soon.
    The lessons that will be drawn after the crisis depend on whether the current stabilization programs in Thailand, Korea and Malaysia lead to early recovery and the restoration of strong growth. If they do not, the recent commitments to competitive markets and transparency will be viewed sceptically.
    For the whole of Southeast Asia, the future of political cohesion and economic development in Indonesia will strongly influence the lessons that are drawn from the 1997 crisis. And that big story is still unfolding.