American economists see a bit of deja vu in Asia's financial
That's because banking problems behind the noise in the
foreign financial markets remind them of home - specifically the
three bouts of financial troubles in the 1980s and '90s. The United
States weathered those banking crises, and analysts expect Asia to
struggle through its present crisis with limited damage.
"There is nothing really new about the situation in Japan and
Korea," says Harvard University economist Richard Cooper. "They
have a banking system burdened with a lot of nonperforming loans" -
loans that are not being serviced with payments of interest or
Federal Reserve Chairman Alan Greenspan and other US
officials assure stock investors that the American economy is in
good shape. So don't panic when Asian markets tumble.
They also are working with the International Monetary Fund
(IMF) to contain Asia's financial fires. Last Friday, South Korea
became the latest nation to ask the IMF for help to restore
confidence in its currency and financial system. It got $20 billion
quickly. It is expected to need a rescue package exceeding $60
At a summit last week of Asia-Pacific Economic Cooperation
leaders in Vancouver that included President Clinton, the
government ministers issued a declaration Saturday telling
investors to maintain their confidence in the Asian region.
So far, all is well in the US. The Dow Jones Industrial
Average bounced back last Wednesday above where it stood before the
Gray Monday plunge on Oct. 27. Asian currency devaluations have cut
import prices for Americans, reducing US inflation.
But Japan - which takes 12 percent of American exports - is
in trouble. Korea's crisis adds modestly to its plight, hurting
exports. And Yamaichi Securities, a big Japanese brokerage house,
appears ready to close its doors tomorrow.
Japan's revival from an extended slump depends on dealing
adequately with bad loans stemming from the collapse in prices of
stocks in 1989 and real estate in 1991. Japan's banks, struggling
with those loans, are tight-fisted lenders. That slows the recovery.
Last Monday, the Nikkei average of 225 leading shares surged
almost 8 percent on news that Japan's 10th-largest commercial bank,
Hokkaido Takushoku Bank, was being allowed to fail. It was seen as
a sign the government is finally tackling the banking problem.
In the next few days, the market went up or down depending on
whether Prime Minister Ryutaro Hashimoto was reported to be
considering using public funds to clean up the bad loan mess, or
whether he was denying that possibility.
"It tells me that the banking problem is more massive than I
thought," says Chen Zhao, an economist at BCA China Analyst, a
South Korea, another major trader with the US, tried last
Wednesday to prop up its currency, the won. It tripled to $10
billion a special fund to write off some of the $26 billion in bad
loans held by banks. …