A Duck Now, Pay Later Foreign Policy
The “prime minister” himself came on the line the other day. No, it wasn’t England’s Tony Blair or Japan’s Ryutaro Hashimoto. It was Robert E. Rubin, the U.S. Treasury secretary, whose stature in Asia is such that he is sometimes thought of as America’s PM, not just its finance minister, because of the primacy of finance in this trade-oriented world. In view of his influence with President Clinton, his command of the issues, the profile of the U.S. dollar in Asia and the joined-at-the-hip interconnectedness of markets East and West, how far off the mark are Asians in their awe of our finance czar?
Too bad, then, that they do not have the same regard for U.S. policy toward the roiling Asian currency, banking and stock market crisis. Many feel that the U.S. wimped out when the epidemic first erupted in Thailand in July. Yes, sometimes Asian leaders will blame us for problems that are their own fault, not ours. But this time they have a point, a big one: Together with the weekend demise of the monumentally important “fast-track” international trade bill on Capitol Hill, their doubt goes to the very core of the U.S. role in Asia.
Since July, Washington has let a nongovermental international institution take the lead position for the U.S. in its response to the meltdown of Thailand’s currency, the baht. Unfortunately, the Thai trouble wouldn’t wait for the Washington-based, U.S.-dominated International Monetary Fund; it spread to other Southeast Asian economies, especially those of Indonesia, Malaysia and the Philippines. Last week the currencies of powerhouses Hong Kong and South Korea lost value and the stock markets of both Japan and Brazil shook. In Tokyo, the ordinarily circumspect Japanese finance minister publicly worried about the future, as did, in Paris, the respected IMF boss Michel Camdessus, especially about the coming impact on Latin America. Is all this America’s fault? Of course not. But ... Rubin said on the phone from Washington: “I disagree that we were late to react. We had been focused on Thailand for quite some time. When the serious problem did develop, we worked with the IMF.” True enough. But there are tactical problems with the IMF. It moves slowly, and its conditions on aid are often viewed as a gun to the head by the political elites that are required to impose them. So rather than commit political suicide, many governments ask for IMF aid as late as possible, and only as a last resort--and then maneuver to spit the bitter medicine out before swallowing. But when the sick country is slow to call the doctor, and the doc is slow to make the house call, the disease can spread before anyone knows it.
As Rubin pointed out, the IMF was as quick as it could be: It used a new emergency finance mechanism (called Halifax, after the Canadian city where it was negotiated in 1995) that’s designed for spillover or contagion emergencies. But Halifax wasn’t quick enough. Rubin now worries that Asia will create a standing bailout fund that will undercut the IMF’s insistence that a troubled national economy kick its bad habits and stay on the wagon of reform. Warns the “PM”: “There are several issues there. One is to make sure that whatever is created does not undercut the IMF’s conditionality.” But even now, leading Asian nations, including Japan and China, are bundling aid money to beleaguered Thailand, basically without conditions. The message is: The IMF way isn’t the only way--maybe we need an Asian way.
Asia is tense right now because no one knows how many dominoes will fall beyond Thailand. Says a cautiously optimistic Rubin: “In Asia there are obviously issues that need to be dealt with in order for world markets to have confidence. But these countries are well positioned for long-term growth. By and large they have high savings rates, strong educational systems, good work ethics and relative flexibility on capital markets. They have the fundamental underpinnings for long-term growth.” In fact, more than ever, Asia, with two-thirds of the world’s population, is opening itself up to world competitive pressures. Why bet against it? In the current Foreign Affairs journal, Harvard’s Steven Radelet and Jeffrey Sachs flatly predict: “In the long term, growth will continue because most of Asia has adopted capitalism as the organizing basis of economic life and become deeply integrated into the global economy.
But Congress’ failure to allow President Clinton fast-track negotiating authority greatly complicates America’s ability to pry open markets in Asia and Latin America. That will hurt them as well as us.
The U.S. should have moved more quickly in July to minimize the impact of the baht crisis on Asia precisely because Asia isn’t just Asia, it’s the rest of us. Yes, Rubin is right: Asia needs the political will to clean up its own act. But for its part America needs the political will to stay fully alert and engaged. The Clinton administration needs to pick itself up after the weekend fast-track disaster. “Remember,” said Rubin. “Southeast Asia’s success is not a six-month story, it’s a long-term story.” Correct, but in the short run, an Asian recession could pull down America’s soaring economy, especially California’s.
