Battening the Hatches in an Economic Typhoon

What a difference a year makes. At last year’s annual Asia-Pacific Economic Cooperation gathering, 18 national leaders basked in the glow of the region’s fourth straight year of economic success, issued trade communiques and posed for photos in festive Philippine barong shirts.

At this year’s summit in Vancouver, the mood is wary as APEC leaders wrestle with once thriving economies going topsy-turvy, a tumult that has sent their currencies and stock markets plummeting and companies into bankruptcy. As U.S. Secretary of State Madeleine Albright said as the summit began Monday, the APEC leaders were meeting amid “predictions that the Asian miracle will be succeeded by an Asian meltdown.”

Coming up with a credible plan to halt the crisis will require more open and transparent economies, more in line with international standards. The phenomenal growth in some nations--Indonesia, Thailand and South Korea--masked the cronyism and corruption that funneled money and resources into industries and projects that could not sustain themselves in open, market-driven economies. Underlying weaknesses are in full view now, and these countries will have to initiate major reforms to secure much-needed rescue packages from the International Monetary Fund.

The economic crisis, while crippling, provides troubled governments the political opportunity to demonstrate they can make tough, timely decisions to contain the problem. That goes even for Japan, the Asian powerhouse, which tried unsuccessfully to evade the storm. The once unthinkable happened this week when Tokyo allowed Yamaichi Securities--the nation’s fourth-largest brokerage firm--to fail. That was a positive development. The action shows a more confident Tokyo, willing to take on some risk but still short of a major realignment of its long-protected economy.

The challenge for U.S. officials is to keep APEC members convinced of the benefits of trade liberalization when the temptation is to hunker down. Tariff reductions in nine sectors were announced Saturday. That’s bold action, a mandatory move despite President Clinton’s initial characterization of Asia’s economic problems as “a few glitches.”

The slide in the hardest-hit economies has governments willing to turn, albeit reluctantly, to the IMF. They have little choice. Imprudent policies got them into this mess, and good economic sense will have to get them out.

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IMF to the Rescue

Since July, the International Monetary Fund has agreed on bailout packages with three Southeast Asian nations. Talks are underway with Korea.

South Korea: $20-$60 Billion (est.)

Philippines, July: $1.1 Billion

Thailand, August: $17.2 Billion

Indonesia, Nov. 5: $23 Billion