U.S. Won’t Go to Baht for Asian Economies

Is this a big deal?,” asked a top international finance observer, marveling over the ripple effect in Asia from Thailand’s sudden economic crisis. “I’ll say! This is the most interesting thing I’ve seen in the last year or so.” Money mavens who follow world currency undulations the way baseball fans track batting averages invariably derive a sadistic thrill (and sometimes thrilling profit) whenever a foreign currency squirms like an insect caught in a spider’s web. Which is what’s happening with the battered Thai baht. But their mercenary predatoriness aside, the Thai tale has major policy implications for America and Asia. Thailand, that Texas-sized Southeast Asian nation a mere 18 hours away from California is perhaps best known outside Asia for its spicy national cuisine and its distasteful sex tours. Now it has another, more dubious distinction: a once-booming economy that’s suddenly in trouble and is starting to remind people of Mexico’s in 1994, when the peso went into free fall and the U.S. contributed to the $50 billion bailout loan, in part to keep alive the fledgling North American Free Trade Agreement.

Earlier this year, the Thai economy, beset by banking problems, flagging exports and a rising deficit, started to bleed and international currency sharks, sensing blood, moved in to make a killing with big wagers that the baht would lose value against other currencies. The all-important finance ministry became a revolving door for one frustrated minister after another. “The printer’s ink on their name cards never even had time to dry,” jokes one baht-watcher from afar.

By the time the currency speculators had finished their feeding frenzy, the sinking baht was sending waves of uncertainty across Asia, rocking currencies and markets in Malaysia, Singapore and the Philippines and threatening to rein in regional growth. But Bangkok has dithered--and Asia itself has an underdeveloped tradition of reacting as a region when one of its economies heads south and lugs its currency down with it. Lawrence Summers, the deputy U.S. treasury secretary, says, “This kind of [Thai] instability highlights the importance of post-Mexico monetary reform.” As Ramon Moreno, senior economist at the Federal Reserve Bank of San Francisco, put it in a recent report, “Countries in Asia have traditionally adopted monetary and exchange rate policies without consulting their neighbors. . . . [But] cooperation may be helpful in reassuring financial markets [to] help avert unwarranted speculative pressures. In spite of this incentive for cooperation, there appear to be significant differences in how much each monetary authority in the Asian Pacific Basin tolerates currency depreciation.”

This is a very classy way of saying that Asia doesn’t have its monetary act together.

That might now change: Later this week in Shanghai, central bank officials from all over Asia will be able to discuss just this issue at their annual get-together. One near certainty, though, is that Washington will not be much of a presence in any talks about aiding Thailand.

Some Asia observers explain Washington’s low profile by arguing that the Clinton administration is in no position to put its money where its mouth is. “Had this all happened under different circumstances,” needles Kenneth Courtis, chief economist at Deutsche Bank Group Asia Pacific in Tokyo, “the U.S. would have been the orchestrator of the bailout, as it was in Mexico. Now Clinton can’t even get fast-track approval for Chile [to join NAFTA] through this Republican Congress. Treasury Secretary [Robert] Rubin or Summers would be stoned if they went up to the Hill and asked for $25 billion for Thailand, especially with all those allegations hanging over the White House about Asian campaign contributions.” (In fact, several allegedly illegal foreign contributors hail from Thailand.)

My Clinton administration sources take serious umbrage at the suggestion that Asia-gate is discouraging Washington from doing the right thing. Moreover, they say, the Japanese will not shore up the baht unilaterally but will work through the International Monetary Fund, where the U.S. is a superpower. In fact, on Friday, the IMF approved a billion-dollar line of credit to the Philippines to help it shore up its peso, badly rocked by the baht’s ordeal.

Courtis, a Canadian, believes the IMF action will serve to disguise Washington’s weak hand. “In fact,” he says, “the U.S. won’t have a dime to put on the table. The baht bailout will get done . . . by the Japanese.” Not surprisingly, Japan is Thailand’s largest foreign investor and has very much at stake in this crisis. For all its own banking troubles, Asia’s dominant economy has pockets deep enough to fix Thailand’s problem if it wants to. And if it does, the true dimensions of Japan’s economic clout in Asia will surface anew.

Central to the American economic success story, in addition to a sound domestic economy, is the omnipresence abroad of the almighty dollar. Anything that erodes its international currency, as it were, is alarming. Asia may now be moving from a dollar to a yen zone. Does anyone care? I asked a Washington official why the U.S. rode to the rescue of Mexico but not of Thailand. There was a chuckle and then this: “Thailand’s not on our border.” Correct, it’s in Asia--far away, right? Not really. In this age of globalized markets and Internet communication, Asia is no longer a slow boat to China away.

So mark down last week as at least a long footnote in the lowering of the U.S. profile in Asia. Yes, the American economy is healthy right now. But not the American polity. The full destructive effect of the Asian campaign-giving scandal is only beginning to become apparent. Little good--and a lot of bad--will come out of it.