'Wild Cards' Will Affect How East Asian Crisis Plays out Murray Weidenbaum

By Weidenbaum, Murray | The Christian Science Monitor, January 15, 1998 | Go to article overview

'Wild Cards' Will Affect How East Asian Crisis Plays out Murray Weidenbaum


Weidenbaum, Murray, The Christian Science Monitor


A week recently spent in East Asia doesn't qualify this economist as an expert on that region's financial troubles. Yet, some insights can be obtained by seeing for oneself. Warning to readers: Given the volatility of the situation, these observations may be out-of-date by the time of publication.

The dramatic financial effects of the Asian currency "meltdown" may have peaked, but the full impact isn't over. The Korean won and the Thai baht lost more than two-fifths of their value in terms of US dollars during 1997. Indonesia's rupiah suffered an even greater loss - three-fifths - while the Philippine peso declined by one-third.

Those massive devaluations are just the start of the adjustment process. Many industrial companies are likely to go under, or at least "postpone" paying their obligations. An even greater number of firms can be expected to default on existing contracts or cut down their purchases and production. Aggregate domestic effects will range from recession (Thailand) to substantial slowdown (Philippines). The effects on US business, in general, should be moderate, given the small role of our trade with Southeast Asia. Western Europe is even less oriented to Asian markets. All this, however, is of little solace to investors and businesses with major commitments in the Orient. There will be losers and winners, especially on this side of the Pacific. US consumers will benefit from lower prices for clothing and other products from that part of the world. US companies with subsidiaries in East Asia should benefit from lower costs (especially in terms of US dollars), as will firms that import components and raw materials. On the other hand, some US producers - as exporters and competitors - will face rougher price competition. Japan and China are two potential wild cards. International credit rating agencies estimate that 15 to 30 percent of the loans held by China's banks are unrecoverable. …

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