Worst of Asian Crisis May Have Passed, Officials Say

Six months after the outbreak of the Asian financial turmoil, top U.S. policymakers and officials of the International Monetary Fund are coming to a tentative conclusion: The crisis has finally turned the corner.

Though it is still far too early to declare even a provisional victory, the U.S.- and IMF-led rescue effort has allowed the hardest-hit Asian “tigers” to begin clearing away the financial wreckage and shoring up their banking systems.

That assessment has changed from just a week ago. As recently as Friday, top officials were still wondering whether the markets in some countries might be out of control. The Indonesian rupiah had fallen far lower than many thought justified, and stock prices were plunging too.

At the same time, negotiations between South Korea and Western commercial banks over rescheduling their loans to South Korean corporations seemed to be bogging down, threatening to jeopardize that country’s entire financial rescue effort.

But with Indonesia’s new financial overhaul plan now beginning to take effect, policymakers say the financial markets’ onslaught against Asian currency and stock markets finally appears to have run its course. And late Wednesday, the South Koreans reached a debt-restructuring deal with international bankers.

“I think that things in Asia are stabilizing,” said Michel Camdessus, the former French central bank governor who has headed the 181-country IMF for the past 11 years.

Another senior international official who has been deeply involved in the rescue effort agrees. “In all likelihood, we’ve turned the corner, but we’re not out of the woods yet,” he said. “There are a lot of battles still to be fought.”

Policymakers warn that there are continuing risks that could quickly unravel much of what has been accomplished and send the Asian economies on another--perhaps almost as destructive--roller-coaster ride.

* Hong Kong, which is experiencing a wave of new bankruptcies stemming from shaky real-estate and investment ventures, seems particularly vulnerable to new speculative attacks in financial markets--which easily could happen if China devalues its currency any time soon.

* Indonesia is still threatened by the prospect of serious political unrest if its current program does not show results soon--a situation that could quickly spread to Thailand and other politically fragile Asian countries. How well it can follow through still is in doubt.

* Despite the recent progress in putting needed reforms into place, the region still faces a serious economic slump that for many countries will bring the first widespread bankruptcies and layoffs in almost three decades. And the market turmoil could return at almost any time.

* The Asian nations could still become locked into a series of damaging competitive devaluations, with countries forced to weaken their currencies to keep their exports priced as attractively as those of their neighbors.

Nevertheless, Robert Solomon, a Brookings Institution international economics expert, asserts that the emergency phase of the Asian crisis appears to have passed. What is left to be done, he says, is to manage the Asian economies’ return to prosperity.

If the first six months of the Asian crisis are any indication, that job will not be easy. The relentless assault by the world’s financial markets since July has pushed some Asian currencies down by 80% to 85%. Stock prices have plunged almost as far.

The bankruptcies have already swept through national economies, not only in South Korea but virtually across the entire region, as Asian governments--under pressure from the IMF--began raising interest rates to prevent capital flight and protect their currencies from attack.

The good news, assuming the optimists are correct now, is that the emergency has ended before the IMF and the major industrial countries expended all the money that they had set aside to help Asian countries staunch their wounds.

Of the $120 billion that the rescuers assembled for various bailout packages, the IMF has used only $18.5 billion, with more installments scheduled to come later. The United States has not yet parceled out any of the direct lines of credit that it had pledged to contribute to various emergency funds.

Luckily for the Clinton administration, the apparent turning point has been reached just as Congress is about to take up a bill that would increase the U.S. contribution to the IMF as part of a worldwide increase in dues that IMF members voted in last autumn.

Treasury Secretary Robert E. Rubin and Alan Greenspan, chairman of the Federal Reserve Board, are scheduled to testify before the House Banking Committee on Friday to press for passage of the legislation. But the bill is opposed by liberal Democrats and conservatives.

On Wednesday, Banking Committee Chairman James A. Leach (R-Iowa) introduced legislation that would provide the full $18 billion that the administration is requesting but would call on the U.S. representative to the IMF to push for reforms of the institution.

U.S. officials have taken pains to point out that the U.S. contribution is essentially a letter of credit and does not count as a federal budget outlay. The IMF pays interest on money it uses. So far, no borrowing country has reneged on any loan.

The IMF has learned a lot from the Asian crisis and has been concerned primarily with stopping the onslaught in the financial markets rather than pressuring countries to employ traditional austerity measures.

Nevertheless, the institution still has its critics, who maintain that it is requiring too much belt-tightening, forcing countries to cut their spending excessively and to boost interest rates by more than is needed to keep capital from fleeing elsewhere.

The job of restoring economic prosperity to the region is unlikely to be easy, experts say.

Asian countries not only will have to deal with recession, they also will have to revamp their economic structures. That will mean abandoning traditional links between government and business and allowing companies to fail and jobs to vanish. Though painful, the transformation will prove a blessing in the long run, economists contend.

* SOUTH KOREAN DEBT: South Korea and its creditors agreed to restructure $24 billion of bank debt. D1