>X-From_: [EMAIL PROTECTED] Thu Jan 08 01:18:29 1998
>Date: Thu, 8 Jan 1998 00:06:26 -0600
>Reply-To: Forum on Labor in the Global Economy <[EMAIL PROTECTED]>
>Sender: Forum on Labor in the Global Economy <[EMAIL PROTECTED]>
>From: Kim Scipes <[EMAIL PROTECTED]>
>Subject: Asian economic crisis & the US
>To: [EMAIL PROTECTED]
>
>January 7, 1998
>
>Folks--
>
>Over the last couple of days, there has been a number of articles/stories
>in the US media focusing on Clinton's desire to extend the age of medicare
>as well as the possiblity of having a balanced budget in this fiscal (1998)
>year--a balanced budget would be the first in the US since 1969.
>
>Now I hate to sound like a conspiracy freak, which I am not, but I find it
>EXTREMELY interesting that these issues are gaining so much attention, when
>it is becoming clearer that the economic crisis in Asia is not being
>controlled by the IMF and, in fact, is getting worse. Please excuse me for
>a longish message, but having just returned from Europe where this crisis
>is getting extensive coverage, at least in the English-language press
>(unfortunately, English is all I speak), I thought I'd pass on some nuggets
>from press reports there. And for those of you who are not understanding
>the emphasis on the United States, keep in mind that much of the world
>economic growth since 1992 has been fueled by the US economy--so changes
>here will reverberate throughout the world.
>
>The for-public line from US officials and most of the US news media is that
>this will not effect the US economy, but no one who knows anything about
>this really believes this horse-hooky. In fact, the IMF itself has changed
>its official estimation for global economic growth this year: where it
>predicted in September 1997 that world economic growth would be 4.3% in
>1998, it lowered that in December, saying growth would only expand 3.5%; in
>fact, Vicki Barnett, writing in a front page story in the "Financial
>Times," says, "...the Fund admitted yesterday that it had previously been
>too optimistic and that its new estimate COULD TURN OUT TO BE TOO HIGH IF
>JAPAN'S ECONOMIC SLOWDOWN WORSENED" (emphasis added) (FT, "IMF says Asian
>Crisis will cut back world growth", December 22, 1997: 1). In the same
>story, a chart based on IMF data, shows that the IMF now expects the US
>economy to decline a further .2% below its earlier projection. In another
>story the same day, Vicki Barnett reports that the US trade deficit is now
>projected by the IMF to expand by over $50 billion to $230 billion (Vicki
>Barnett, "IMF World Economic Outlook: Trade patterns set for big shift",
>FT, Dec 22, 1997: 3).
>
>Another story on the trade problems for the US: "The near certainly that
>the US trade deficit will be driven sharply higher by the economic crisis
>sweeping through Asia has profound economic and political implications.
>[para] Some US workers could lose their jobs, and employers could feel
>pressure to hold down wages. The profits of multinational corporations
>have already been put under pressure by the downturn in Asia, unnerving
>investors and analysts are forecasting more bad earnings news. *** [para]
>The Asian crisis is already altering trade patterns. In South Korea, for
>example, US goods are nearly twice as expensive, when bought with the
>country's devalued currency, as they were at the beginning of the year.
>That is squeezing US exporters ranging from auto-part makers to farmers and
>could imperil the jobs those exports support. [para] A survey last week
>by the National Association of Manufacturers found that four out of five
>manufacturing executives anticipated significantly lower exports next year
>because of the problems in Asia and the resulting currency fluctuations.
>Among the industries that the association expects to be particularly
>hard-hit are electronics, telecommunications equipment and capital goods."
>Richard W. Stevenson and David E. Sanger, "Ghosts of Deficits Past:
>America Relives the Fear--Flood of Asian Imports Set to Swell Trade Gap",
>International Herald Tribune, Dec 22, 1997: 11.
>
>In a story about the US trade deficit in October, there is an interesting
>paragraph: "But in an ominous sign, the US deficit with Japan soared to
>the highest level in two and a half years. Analysts are forecasting
>increased deficits with all Asian countries as the US economy feels the
>effects of the financial turmoil that has engulfed the region." And
>further, "Economists are predicting an even bigger deficit for 1998 as
>Asian imports flood the country, made suddenly cheaper because of the sharp
>currency devaluations that have occurred in Asia. A rising US trade
>deficit is expected to be the main adverse impact felt in the United States
>by the economic turmoil that has forced South Korea, Indonesia and Thailand
>to run to the International Monetary Fund for huge loan guanantees to
>stabilize their countries. Forecasters say Asia's problems could cut
>economic growth in the United States by one-half of a percentage point or
>more next year." "Record Exports Cuts U.S. Trade Gap: But Deficit With
>Japan Soars, a Sign That Asia Crisis Hurts America", International Herald
>Tribune, Dec 19, 1997: 13.
>
>In another story in the International Herald Tribune (IHT), Alan Friedman
>writes "Hours after releasing its official economic outlook Monday, the
>Organization for Economic Cooperation and Development changed three of its
>key 1998 predictions, with officials blaming the instant revisions on the
>fast changing financial crisis in Asia. *** In a published report on
>Monday, the OECD forecast a 1998 growth rate of 2.9 percent among its 29
>member nations. But at a press conference here [Paris-KS] Monday
>afternoon, the OECD's chief economist revised the forecast down to 2.5
>percent." And, note this: "Economists said that the OECD's change of
>forecasts was a sign that the crisis in South Korea and other Asian nations
>is moving so rapidly THAT INTERNATIONAL ORGANIZATIONS CANNOT KEEP UP WITH
>EVENTS" (emphasis added.) Alan Friedman, "OECD Adjusts Figures in '98
>Growth Forecast: Asia Meltdown Forces Changes in Predictions," IHT, Dec
>16, 1997: 13.
>
>We can see how drastic the economic crisis has both hit various countries,
>and to see how the IMF has changed its forecasts for economic growth: real
>Gross Domestic Product (GDP) growth in 1988 for Thailand was projected at
>7% in May 1997 and 0% in December; for Indonesia, it was 6.5% in May, but
>2% in Dec; for Malaysia, it was 7.8% in May and 2.5% in December; South
>Korea was 6.2% in May and 2.5% in December; and the Philippines was 6.2% in
>May and 4.3% in December. Additionally, the IMF's chief economist Michael
>Mussa said "the IMF forecast could be revised downward again if problems
>with business confidence and with the financial system persisted." Mussa
>further admitted that the lower figure for Korea--2.5% growth--"was 'on the
>optimistic side'." Vicki Barnett, "IMF World Economic Outlook: Trade
>patterns set for big shift", FT, December 22, 1997: 3.
>
>In an opinion piece, US economist Robert Samuelson sees Japan as a big part
>of the Asian problem: "All of Asia's economic casualties--South Korea,
>Thailand, Indonesia, Malaysia and the Philippines--need to export their way
>to recovery. They have depleted their foreign exchange reserves and
>accumulated huge overseas debts. To buy imports and service their
>debts--in other words to keep their economies running--they need to earn
>more foreign exchange. [para] A healthy Japan would help by providing an
>expanding market for their exports, but that will not happen. Even
>optimistic economic forecasts see meager growth for Japan in 1998. The
>International Monetary Fund , for example, recently predicted only 1
>percent. [para] *** At best ... Japan will not buy many extra exports
>from the rest of Asia. The United States and Europe will have to absorb
>most of the increase. [para] A Japanese recession would make everything
>worse. Japan would buy less from Asia and try to sell more itself. All
>countries would have a harder time reviving. [para] This defines the
>economic menace posed by Japan. Asia's economic downturn might feed on
>itself: too many sellers chasing too few buyers." Robert J. Samuelson,
>"Stubborn Japan Is a Big Part of the Asian Problem," IHT, Jan 2, 1998: 6.
>
>"Japan's economy has come to a standstill as higher employment and incomes
>have not led to increased production, a [Japanese] government report said
>Monday. [para] The Economic Planning Agency, in an analysis of Japan's
>economy in 1997, said the economy's cyclical trend toward a recovery had
>weakened in the latter half of the year. *** [para] The agency also
>mentioned a possible deterioration in Asia's economic crisis as a factor
>that could put pressure on the Japanese economy." Agence France-Presse,
>"Japan's Economy Stalled, Agency Says", IHT, Dec 30, 1997: 11.
>
>Two more recent comments from opinion pieces in the International Herald
>Tribune:
>
>"As a former hedge fund manager enjoying a sleepy sabbatical from the art
>of speculation, I was shaken by the Asian crisis of 1997. It shattered the
>whole structure of expectations that had long governed the behavior of
>global investors. [para] This is a profound moment for the psychological
>state of the world economy. [para] We can no longer wake up in the
>morning and say, 'No matter what happens, I know Asia is still growing
>strong and keeping the system rolling.' Now the myth of Asian
>invincibility has collapsed. We have lost a foundation stone. [para]
>Will this lead to global disaster? That is not at all clear, or even
>likely. Will American stocks decline? I do not know. It depends upon
>what people come to believe. *** [para] From the early 1980s on, it was
>an article of faith that Asia was a miracle. Savings, investment,
>education--all of the right ingredients for economic success were present.
>[para] For years, strong economic performance and rising asset prices
>inspired investors, commentators and economists to uncover even more good
>news about Asia wherever they looked. Today, where one everyone saw
>efficiency and vitality, the image is one of widespread corruption and
>waste. [para] How could anything so good turn so bad so quickly? IF
>ASIA'S VIBRANT ECONOMIES CAN COLLAPSE, WHAT OTHER ASSUMPTIONS ABOUT
>ECONOMIC CONDITIONS ANYWHERE CAN WE COUNT ON?" (emphasis added). Robert
>A. Johnson, "World Leaders Have to Be Seen to Stimulate Demand", IHT, Dec
>29, 1997: 8. (At the end of the article, it identifies Johnson as "chief
>economist of the [US] Senate Banking Committee in 1987 and 1988, is a
>former managing director at Soros Fund Management.")
>
>"There has never been a crisis like the one besetting Asian financial
>markets. It is international in origin and is a crisis of the private
>sector, not of government finances. Its nature explains why IMF rescue
>packages have had scant success. [para] The currencies of South Korea,
>Indonesia and Thailand HAVE ALL FALLEN FASTER AFTER IMF INTERVENTION THAN
>THEY DID BEFORE IT [emphasis added]. That is not surprising. The IMF is
>treating the crisis as a series of national events that require draconian
>local policies, rather than as AN INTERNATIONAL LIQUITY DOMINO EVENT. THIS
>WRONGHEADED VIEW WILL CAUSE RECESSION AROUND ASIA AND PERHAPS THE WORLD"
>[emphasis added]. *** [para] Because of trouble at home or simply because
>of head office worries about Southeast Asia, the overseas banks reduced
>their commitment, setting off a replayment credit squeeze hitting at least
>two Asian countries directly and knocking on to others. *** [para] [In
>South Korea] the won has collapsed not because of trade or even innate
>corporate problems but because of a sudden withdrawal of dollar liquidity.
>*** [para] [The IMF] has never suggested that its Western members' role in
>the debacle be studied. Nor has it questioned the wisdom of unfettered
>money flows. Yet it is obvious that a SUDDEN CHANGE IN PERCEPTIONS OF
>ASIAN RISK WAS AN IMMEDIATE CAUSE OF THE CRISIS [emphasis added]. [para]
>Instead of lecturing Asia, IMF Managing Director Michel Camdessus could ask
>what the Banque de France did to stem the huge rise in French banks'
>short-term lending to Asia in the 18 months to mid-1997." Philip Bowring,
>"What About Unwise Lenders?" IHT, Dec 29, 1997: 8.
>
>______
>Now, let's flash forward to this morning's NYT:
>
>"As the United States has focused on rescuing South Korea, the emergency
>programs to stabilize Thailand and Indonesia have begun to unravel, raising
>new fears about the effectiveness of the International Monetary Fund's
>prescriptions for stabilizing large regions of Asia. [para] With
>investors still stampeding out of Asian markets, the currencies of Thailand
>and Indonesia have plumeted to new lows, defying months of efforts to
>restore confidence and making it more costly for companies to repay
>crushing debts denominated in dollars and Japanese yen. [para] On Monday,
>Thailand announced that it would ask the IMF to ease the terms of a $17.2
>billion bailout package. Indonesia has so far refused to honor several key
>conditions of its nearly $40 billion rescue package. *** [para] 'There's
>no question that we're in deep trouble again in Southeast Asia,' a senior
>adviser to President Clinton said today. 'The political problems are
>getting a lot more complicated. And the markets are having trouble sorting
>out which countries are tackling their problems, and which are not.'
>[para] Yet the economic magnitude of Thailand and Indonesia pale by
>comparison with that of South Korea, and all three pale in size compared
>with Japan. WASHINGTON'S REAL FEAR IS THAT RENEWED ECONOMIC INSTABILITY
>AMONG THE RELATIVELY SMALL ASIAN COUNTRIES COULD SPREAD BEYOND CONTROL
>(emphasis added). [para] Early in July, Thailand's decision to abandon
>the longtime link between its currency and the dollar set in motion a
>domino effect that brought down the currencies in Indonesia, Malaysia, the
>Philippines and eventually South Korea. That cycle can accelerate because
>each devaluation makes a country's exports less expensive overseas, forcing
>other nations to devalue to stay competitive. *** [para] ...many
>investors are still fleeing the major Southeast Asia currencies. Now, the
>Thai baht and the Indonesian rupiah have fallen lower than before the IMF
>intervened. [para] The IMF's five-month-old economic plan for Thailand
>assumed that the baht would stabilize to a rate of about 32 to the dollar.
>IT NOW TRADES AT 52 TO THE DOLLAR" (emphasis added). David E. Sanger,
>"With the Focus on South Korea, Thai and Indonesian Aid Falters:
>Currencies Fall, and Strict Reforms Art Put Off", NYT, Jan 7, 1998: A-1,
>C-2.
>
>And to bring us up to date: "The Indonesia, Malaysian, Thai and Philippine
>currencies plunged to record lows again yesterday, AS THEY HAVE EACH
>TRADING DAY OF THE NEW YEAR" (emphasis added). The reports gives the new
>values: Indonesia rupiah--7,700 to the dollar (the lowest level since it
>began trading in 1971); Malaysian ringgit--4.3657 to the dollar (the lowest
>since it was floated in 1973); Thai baht--54.35 to the dollar; and the
>Philippine peso--44 to the dollar (the lowest ever). Bloomberg News, "4
>Asian Currencies Plunge to Record Lows," NYT, Jan 6, 1998: C-2.
>
>________
>
>I hope this has helped people further understand what is happening in the
>global economy, and that it shows that not all is well. We will have to
>await further developments. Kim Scipes
>
>
>
>
Regards,
Tom Walker
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