Asian Clouds Darken World Outlook

Worries are increasing that the Asian crisis could be the start of a broad, global economic slowdown that will stall even the currently prosperous U.S. and European economies.

The storm clouds in recent days have been frightening indeed, as markets tumble around the globe. Hong Kong’s once-vibrant economy may be falling into recession. In Moscow there was open talk of the economy “collapsing” as coal miners stopped railroads to protest the lack of paychecks and the government hiked a key interest rate to 150% in a desperate attempt to prop up the ruble.

In South Korea, 80,000 workers took to the streets to protest layoffs that will accompany reforms of the country’s old corporate system.

Indonesia’s economy is all but shut down in the wake of riots and killings this month. Japan’s giant economy, once the envy of the world, is stalled and seemingly unable to revive. India’s nuclear tests have brought economic sanctions that threaten its prospects for development.

China, seen only last year as the greatest growth story ever told, is now a source of anxiety. The worry is that its economy too will slow down, leaving tens of millions of its people roaming the roads in search of work and food.

However, none of those troubles is particularly new. Hong Kong’s economy, for example, was hit by a slowdown at the beginning of the Asian crisis in July. Its continued contraction is not a great surprise.

But to investors in world stock markets, the continued economic troubles in Hong Kong, South Korea and elsewhere in Asia come as a great disappointment. Global opinion only months ago was that the Asian crisis was passing and that the region’s economies would recover quickly.

Indeed, in January, South Korea’s stock market recovered virtually all its losses of last year as optimism surged about that nation’s economic recovery.

But in the last week, investors around the world have realized that their earlier optimism was premature. It is now clear that Asia’s economies will take years to transform themselves and grow vibrantly again.

As perceptions have changed, so have fears that the long Asian trauma will exert a greater drag on the whole world economy. That is why stock prices have been falling dramatically, then in some cases rebounding again. The prevailing sentiment is confusion.

But to some extent, what is happening in Asia and elsewhere should be familiar to all who recall the transformation of the U.S. economy in the 1970s and ‘80s.

That historic “restructuring” of U.S. industry was not accomplished in a year or two. And neither will Asia’s changes be quick and painless. The Asian crisis is not a bungee jump, down one year and springing back the next, but a reform process of several years.

To be sure, despite claims that the impact will be slight, the economies of the United States and other nations already have been affected--exports down, company earnings lowered. Boeing Co. is selling fewer planes because Asian buyers are backing away from orders. U.S. companies such as Ford Motor Co. are settling in for “quite a few years of instability,” said Ford Chairman Alexander Trotman.

California’s economy is particularly affected. Exports by the state’s farmers, manufacturers and others are down, and that will contribute to a 7.5% decrease in outbound shipments through the ports of Los Angeles and Long Beach.

But economic restructuring in Asia is healthy in the long run for the world economy. And it most certainly means opportunities for U.S. companies and the goods and services of the highly developed U.S. economy.

Even now, as Japanese industry struggles with reforms, U.S. corporate and financial investment is going into Japan, reports Mark Sullivan, a Tokyo-based senior vice president of the Price Waterhouse accounting firm, which works on such investments.

To understand what is going on, say experts, it is necessary to take a close look at the individual countries and economies.

Across Asia, heavily state-influenced economies that grew up on a diet of subsidies, protectionism and exports to the United States are having to restructure.

Reform can look frightening. Company losses that have been papered over by false accounting in Japan, South Korea and elsewhere are now being unmasked. Bank loans carried for years on the books of ostensibly healthy banks are suddenly disclosed as losses.

And in China, state-owned industrial enterprises, traditionally financed without question by state-owned banks, are having to come to grips with real costs and priorities of investment.

Today there is an over-concentration on the gloomy outlook for many Asian economies, says Charles Wolf Jr., senior economic advisor at Rand Corp. “The great assets of South Korea’s economy, in terms of skilled, capable workers and an educated, healthy population, will prove far more important in the long run.”

Taiwan, Hong Kong, Singapore and Japan also possess educated skilled workers, which bodes well for their development. But outside Singapore in Southeast Asia, the picture is more mixed, though progress is evident in the Philippines, Malaysia and Thailand. Indonesia remains a deeply troubled nation.

Elsewhere, Russia is in no worse shape this week than it was last. The truth is, Russia today represents a vast underground economy of unofficial transactions and few tax payments. That is why its government is in financial trouble. If striking, unpaid coal miners force a change in that system, it would be all to the good for Russia.

Meanwhile, the Russian economy is too small to have much effect on the rest of the world. The real story in Europe is that Russia’s former colonies in Eastern Europe are progressing economically as new investment comes in from Germany and other Western countries eager to take advantage of educated workers.

Elsewhere in Europe, the move to a single currency and the further development of the economies of Germany, Italy, Spain, Britain, France and other countries bode well for the global economy.

In Latin America, there is fear that cheap goods from Asia will undercut fledgling economies. But in Latin America too countries that only yesterday were hobbled by military dictatorship or heavy-handed state control are now privatizing industry and setting up regional trade systems.

As for the United States, investors are worried because stock prices are high. There is fear of a collapse. But the underlying strength of the U.S. economy--the efficiency of its companies and the vibrancy of its housing markets and high-tech industries--is genuine. “Stock prices will fluctuate,” as J.P. Morgan said long ago, but collapse is not in the cards.

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Jittery Global Markets

The financial world trembled Wednesday as market plunges in Asia, Russia and elsewhere reverberated worldwide. By day’s end, Wall Street and other key markets had stabilized, but experts predicted more volatile days ahead.

United States: The Dow recovered from 175-point plunge, but market overall has been falling for last month.

Mexico: Stocks rebounded from heavy losses, but peso sank to record low of 8.84 to the dollar.

Europe: Markets fell sharply after hitting record highs Tuesday.

South Korea: Tens of thousands strike; stock index hovering near 11-year low.

Russia: Central bank triples key interest rate to protect ruble; stocks fall 10%.

Brazil: Stocks index plunges early to five-month lows, then rallies.

Hong Kong: Leader predicts recession, sending stocks down 5.3%.

Indonesia: A run on country’s largest bank prompted rumors of a government takeover.

Japan: Yen falls to seven-year low versus dollar; stocks drop 1.4%.

Source: Times staff