THE GLOBAL dominoes that began falling in South-East Asia last summer continue to go down. The "tiger economies" in the East have already tumbled, some, such as Indonesia, spectacularly; Latin America, Hong Kong and China are still under threat. But the greatest scalp of all has gone to the speculators, with the devaluation of the rouble, raising the spectre of a destructive round of world-wide beggar-my-neighbour devaluations.
The situation would be more manageable if this were indeed purely an "economic" problem, or if it involved only financial issues. There are short-term reasons for Russia's devaluation that do seem to come within the scope of such an analysis. Russian oil is now more difficult to sell with the Asian down-turn, making it harder for Russia to finance her foreign debts with money from exports. Thursday's black day on the Russian stock market was widely blamed on the intervention of a sole financier, George Soros. But Russia is, or should be, rich - especially in oil, coal, and human resources. Orthodox economic "correction" - loans to tide Russia over while she raises taxes, cuts government spending and shrinks the economy - might usually be expected to meet such challenges. Our instinct, therefore, has been to go to Russia's help.
We have been encouraged in this instinct by fear, rather than rationalism. One of our fears has been of a global crash, the threat of which is not receding. South-East Asia sinks ever deeper into recession. Prospects for the American economy, so bullish for so long, are worsening. The New York stock market seems to have come to the end of its long, strong bull run as profits and dividends fall, while the trade deficit rises. If rouble devaluation were to turn Russia into a black hole, defaulting on the huge debts it has built up with the outside world, problems might turn to crises. The West has also been fearful of bringing the right-wing populism of Lebed or Zhironovsky to power. …