U.S. Moves to Take Advantage of Asian Woes

While the U.S. trade balance is likely to suffer during the next year or so, other U.S. businesses are maneuvering to acquire interests in profitable Asian firms in countries whose currencies have fallen sharply since last summer, they say.

That prospect, as well as the continuing search by private capital for a safe refuge in a volatile world, propelled U.S. stock markets to historic highs last week.

Still, analysts at a forum, sponsored by the U.S. Institute of Peace, on the political and security implications of the Asian financial crisis stressed that Washington should not be overconfident about its position or assume that the worst of the crisis is now over.

"There's going to be a very painful process," warned Rep. Douglas Bereuter who chairs the Asia subcommittee in the House of Representatives. "(The reforms) will be seen as accomplishing an American agenda," he said. "The United States is going to get a lot of criticism by those people...who lose their jobs."

"We have to be seen as not kicking people while they're down," noted one senior administration official who did not wish to be identified.

For now, priority number one, according to these experts, is to ensure that the U.S. Congress approves President Bill Clinton's requests for 18 billion dollars for the IMF.

An unusual right-left coalition in Congress is vowing to oppose both requests unless the IMF implements drastic reforms. Left-wing Democrats are demanding that the Fund commit itself to defending worker rights, while many Republicans argue that IMF bailouts interfere too much with market mechanisms and encourage reckless investors to repeat their mistakes.

"The outlook (in Congress) is very dicey," said Rep. Jim Leach who is the Republican chairman of the House Banking Committee. Leach told the forum that most Democrats will probably vote for the measure so long as the trade union movement remains neutral, but he is worried that anti-abortion Republicans will tie the IMF funds to another measure advancing their agenda. "My fear is that (such a move) could cause Democrats to flee the ship," he said, suggesting that could sink the effort. "There are lots of question marks."

The uncertainty surrounding the request is causing some anxiety on Wall Street despite the markets' historic performance. "The worry is that the sense of urgency (in passing the IMF appropriations) is not there," said Robert Hormats, a senior executive at Goldman Sachs.

He noted that the U.S. economy has only just begun to feel the trade impact of the financial crisis which, according to most analysts, will result in a major surge in Asian exports to the United States. As the trade deficit rises, lawmakers will be less inclined to vote more money for the IMF, according to Hormats.

Similarly, John Whitehead, chairman of the New York Federal Reserve and a former deputy secretary of state, expressed concern about the possibility of a sharp drop in stock markets here.

Current stock prices, he said, "largely psychology rather than reality. I don't understand it, but I'm very nervous about it," he said, adding that a major plunge could bring about a "very serious retreat" by the United States from world affairs.

"Korea will be easiest," said the administration official who predicted that the country could return to the capital markets by the end of the year.

The same analysts are most concerned about Indonesia and its aging leader, President Suharto, who has been far less enthusiastic about reform. Food riots have already taken place in many parts of the country, and major unrest met by repression could make bilateral relations much more difficult, according to the official. But Washington does not see countries in the region turning away from the global economy primarily because they can't sustain the growth rates they need if they adopt more protectionist policies.

Despite strong rhetoric against speculation in the global system, "(Malaysian Prime Minister Mohamed) Mahathir has done everything he can to keep his country open," said the senior official.

Analysts, however, did express some concern about the impact of the crisis on China.

While Beijing has pledged not to devalue the yuan to compete with other East Asian nations, it may find itself forced to do so by the end of the year, according to Ezra Vogel of Harvard University. He said the crisis will also slow certain elements of the government's reform program.

A major increase in Chinese unemployment resulting from the reform of state enterprises, according to former CIA director, could also have a political impact. "Leaders could be tempted to use nationalism as a rallying cry, (and) the focus is likely to be Taiwan (which) is increasingly an affront to China," he added.

A drive by Taiwan to take advantage of the economic situation by raising its political profile in the region "could have serious implications for relations between Taiwan and China," agreed Kantor.

Tensions with Japan could also increase unless it does more to stimulate its economy and spur demand for U.S. and East Asian exports, according to analysts. But Washington should be careful not to hector Tokyo publicly, leaving that instead to Asians and Europeans, warned Michael Armacost, a former senior Pentagon official and now head of the influential Brookings Institution here.