Posted at 7:11 p.m. PST Saturday, December 6, 1997
Asia's down, but the past suggests it's not out
New York Times News Service
TOKYO -- Shattered by a financial crisis, Asians question whether their
historic boom may be over. A top Japanese government official warns that
his country's economy may ``completely collapse.''
The editor of Asia's leading business magazine frets that the crisis may
``negate much of the hard work and progress of the past two decades.'' A
young woman agonizes, ``The question I ask myself is whether Japan can
survive.''
Asia in 1997?
No, that was Asia in 1974, after oil countries curbed exports and sent
petroleum prices soaring to produce a global ``oil shock.'' The
shortages were particularly terrifying to many nations in Asia that
depended totally on imported oil as the lifeblood of their economies.
The despair back then was nearly universal, yet in retrospect it looks
ridiculous. Asia's best days were still ahead, and the region recovered
quickly to register the fastest economic growth rates in the world.
That has been something of a pattern in Asia over the last 25 years. An
unexpected crisis sets off profound anxieties that the party is over,
and gloom spreads as countries focus on what seem insoluble challenges
to their systems. Then, within a couple of years, they bounce back.
Will that happen again? Will Asia's tigers and tiger cubs come roaring
back, more formidable than before?
``Everybody's asking, `Is the Asian century over before it began?' ''
said John F. Neuffer, an analyst at a research institute in Tokyo. ``I
think the patient is in the hospital with the flu, but he'll bounce
back. All these countries will be back in a couple of years.''
That is a common though not universal conclusion among Asia experts, and
some believe that the present crisis is in a perverse way the best thing
that could happen to the region.
The idea is that if the crisis forces banks and markets to modernize so
as to allocate capital more efficiently, then this trauma could be
remembered as a boon to Asia.
``As these adjustments take place, each of these countries will have
seized the opportunity to strengthen their economies in fundamental
ways,'' Michel Camdessus, the managing director of the International
Monetary Fund, said in a recent speech in Singapore. ``This leads me to
agree with those in the region who see this crisis not as a blight on
the future, but as a blessing in disguise. Indeed, after this period of
adjustment, these economies will emerge stronger than ever.''
The crisis has already had some beneficial effects. Among the major
problems in the region were speculative bubbles and unsustainable
exchange rates and trade deficits, but the panic has obligingly pricked
the bubbles and sent currencies plummeting to levels that will increase
exports and reduce or eliminate the trade deficits.
Other challenges have been business secrecy and hidden accounts, crony
capitalism that operates on connections rather than rules, and bankers
who pass out loans to their best buddies rather than the best borrowers.
These days, pressure from the International Monetary Fund and from
overseas investors is whittling away at these problems and encouraging
more open and efficient markets.
There are broad disagreements among economists about how long it will
take for Asia to recover and how much spring there will be in the
eventual bounce, but the consensus is that the long-run prospects look
rosy if only the region can stagger through the short run.
``Asia has tremendous long-term growth prospects,'' said Jeffrey Sachs,
the director of the Institute for International Development at Harvard
University.
``Asia has some problems but it also has a great many economic
strengths, the kind that everyone saw two or three months ago,'' he
added. ``What we're really in the midst of right now is an extremely
acute financial panic. A financial panic is a situation where everybody
is running out the doors because everybody else is running out the
doors.''
One risk, as Sachs noted, is that the pessimism becomes self-fulfilling.
A confidence crisis and correction, poorly managed, can become something
more far-reaching, and that is one of the explanations for the Great
Depression of the 1930s.
But Asia has had plenty of experience in gloom.
The oil shocks of 1973-74 and 1979 left the oil-importing countries of
Asia fearful that their high-growth years were over. Countries like
Malaysia and Singapore sank into a trough and despaired in the
mid-1980s.
The stiff appreciation of currencies in Japan and Taiwan in the late
1980s seemed to herald the end of the export boom in those countries,
and investors fled Hong Kong and China in panic after the Tiananmen
crackdown of 1989.
Yet in retrospect, what those episodes underscored is how agile Asian
economies are and how nimbly they can adjust to adversity. Each time,
governments scrambled to mend their policies, businesses desperately
pared their costs and fought for new markets, and the boom returned.
Based on those experiences, today's crisis might seem a tonic for the
region, depreciating currencies so that exports can be sustained, and
forcing the development of sturdier capital markets and banks so that
Asia can emerge stronger from its ordeal. The problem is that there is
another example drawn from the past, one far more sobering: Japan in the
1990s.
In the past, Japan had shown extraordinary resilience, but since 1990 it
has lost air like a steadily deflating tire, as government officials
stand about kicking the tire and forming committees to try to locate the
puncture.
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