Another Year of Living Dangerously
The Asian crisis is of sufficient vintage now to qualify for the Frequently Asked Questions treatment, along with my answers.
Question: Is the crisis starting to ebb?
Answer: Not at all. At best, Monday’s rebound notwithstanding, it’s in remission.
Q. But Federal Reserve Board Chairman Alan Greenspan says the impact on the U.S. is modest. What do you know that he doesn’t know?
A. He’s respected but not always right. Greenspan is focusing on the U.S., which so far has not been hit much, and he’s trying not to be alarmist. But he also admitted that because of Asia, the U.S. economy would start slowing by June. More than a million Americans are likely to lose their jobs next year because of lowered Asian demand for U.S. exports. Keep in mind, too, that Japan, the world’s second-largest economy, is in big trouble and is big enough to pull us down if it falters further.
Last week when even the all-powerful minister of finance, Hiroshi Mitsuzuka, resigned over a corruption scandal, I asked one of Japan’s best-known newspaper editors for his assessment. From Tokyo, he faxed: “This is the tiniest tip of the iceberg. I would expect there would be a fundamental reorganization, unprecedented in the history of the MOF.” My precise Japanese friend does not casually throw around a term like “unprecedented.”
Q. Indonesia looks a lot shakier; will it collapse?
A. Remember “The Year of Living Dangerously,” the 1983 film about the fall of then-dictator Sukarno. You might soon see the sequel--the fall of President Suharto --except on TV news instead of the silver screen. If revolution does come to the world’s fourth most-populous nation, no one will shed many tears when the general is finally gone. But recall Henry Kissinger’s observation before the shah of Iran fell that whatever the many faults of the Peacock Throne, there was no assurance that the shah’s successors would prove to be any better. One fears for Indonesia in coming months.
Q. Korea seems to be doing better, right?
A. History, which has been so unkind to Korea, now seems to want to make up for past injustices. It has given that star-crossed land President-elect Kim Dae Jung. Miraculously, he seems to have persuaded the labor unions to swallow the substantial pain of patching up the economy. In a crisis there’s no substitute for intelligent and strong leadership.
Q. Speaking of leadership, how’s Mr. Intern-gate doing?
A. Not bad, at least until recently. Remember the president’s personal phone calls to Asian leaders? Treasury Secretary Robert Rubin’s close watch on the collapse? Deputy Treasury Secretary Lawrence Summers’ hurried but reassuring swing through the region? These were all pluses. But can this administration keep up the intensity with all that is swirling around it now? Don’t bet on it.
Q. How is the International Monetary Fund doing?
A. I wish the IMF weren’t basically the only major institution we have on this case. In retrospect, the Japanese, led by their worldly wise multinationals, were right to want a separate but parallel Asia fund that could have injected money more quickly into panicked markets. But they were talked out of it by Rubin, a persuasive man who preferred leaving the crisis-management with the IMF. Too bad.
Certainly an earlier infusion of outside dough into Thailand, where the contagion broke out, might have slaked the panic thirst and slowed the crisis. And the IMF cannot prevent recession. It tends to move slowly, not to mention formulaically, so much so that countries sometimes are reluctant to ask for help and wind up infecting neighboring economies. It was dumb to put all our eggs in the IMF basket. Even so, it’s about all we have right now, and Congress may well fail to approve additional appropriations. Then the world will really wish we had listened to the Japanese.
Q. Haven’t we learned anything from this crisis?
A. A little. We’ve got to come up with ways to lower the pernicious impact of hyper-speculation on international money markets. On any given day, $1.5 trillion can move across borders. “The system,” explains UCLA economist Michael Intriligator, “creates a house of cards that will fall down from time to time. If we don’t figure out some reform, it will fall down again.”
Another emerging lesson is the crucial role of China as well as Japan. Beijing is trying to avoid devaluing its currency, but widespread social unrest could void that thoughtful policy. A Chinese devaluation, deepening the discount on their exports even further, would trigger another crash in Southeast Asia.
So the key to escaping world recession lies in Beijing and Tokyo. Mark 1998 down as another year of living dangerously.
