Rubin tells ailing Asia to hang tough

Rubin tells ailing Asia to hang tough

By Knut Engelmann

WASHINGTON (Reuters): A year after much of Asia descended into economic chaos, the chief architect of the West's massive rescue effort had a simple message for the fallen tigers: things may be tough, but hang in there.

It took U.S. Treasury Secretary Robert Rubin just one week of sweeping through the crisis-stricken region to conclude he had done all the right things when steering the international community into a multibillion dollar bailout program based on the harsh principles of tough monetary and fiscal austerity.

Twelve months after the crisis was set off by Thailand's decision to devalue its weakened baht currency, Rubin found a depressed region reeling from slumping economic growth rates, mounting unemployment and ubiquitous poverty.

It takes a stretch of the imagination to believe that Asia, once the most dynamic player in the world economy, has turned the corner. But if you ask Rubin, the West has done all it can, and now it's up to the beleaguered governments of the once-proud Asian economies to deliver their part of the deal.

"The only path that is going to lead countries back to growth and stability -- albeit only after a period of difficulty -- is a path of strong reform," Rubin said at one point during his hectic four-nation tour last week, a mantra he repeated at each and every stop along the way from China to Malaysia, Thailand and South Korea.

It has been a tumultuous year for Rubin, a key member of President Bill Clinton's top policy-making team. Containing Asia's sickness to prevent it from spreading to the booming U.S. economy has turned out to be the most difficult job yet for the former Wall Street wizard who got his first try at international economic diplomacy when he drew up a $40 billion bailout plan for Mexico in 1995.

But while he was hailed as a hero for his efforts to prevent financial meltdown in Mexico, his handling of the Asian crisis has come under mounting attack both at home and abroad.

As millions of Asians feel the economic gains of the past few decades reversed, the region has seen a rise of nationalism that threatens to derail a process of reforms which Washington -- the key power behind the International Monetary Fund's $120 billion Asian bailout program -- believes is key to recovery.

To complicate matters further, a drastic shift in the continent's power balance away from Japan and toward China, Asia's emerging economic superpower, has forced the United States to reevaluate its position in the fragile region.

It was during his one-day stop in Malaysia that Rubin got his most pressing reminder of Asia's new realities. The nation of 21 million has so far managed to avert the worst effects of Asia's malaise, but as it begins to feel the effects of the turmoil around it, Kuala Lumpur's autocratic leader Mahathir Mohamad has emerged as one of the most vocal critics of the West's approach to Asia.

Mahathir has accused the West of trying to destroy the local economy by forcing interest rates to crushingly high levels and then buy it up cheaply. His favorite scapegoats are international currency traders, whom he blames for bringing all kinds of evil upon the regional economies.

Such assertions don't sit easy with Rubin, who has amassed a fortune during a 26-year career on Wall Street that took him to the top management of investment house Goldman, Sachs & Co.

Rubin believes high interest rates and fiscal restraint are key to stabilizing the region's currencies, regaining investor confidence and laying the groundwork for economic recovery.

"There's nothing that I've learned that is different from the broad view I've had before," Rubin said after his trip.

But the sense of frustration among Asia's politicians, business executives and labor leaders is hard to ignore.

In South Korea, union leaders told Rubin of the hardships imposed by the IMF's $60 billion program for Seoul. In Thailand, Rubin was forced to defend the fund's heavy-handed approach in a speech to skeptical business students at Bangkok's elite Chulalongkorn University.

But Rubin did not waver in his conviction that biting the bullet of tough reforms was the only way for Asia to recover.

"The question I had on my mind was whether people in the region really realize the difficult economic conditions that inevitably lie ahead. And the answer, though it varies from place to place, is yes," he concluded.

But Rubin acknowledged that even that recognition will not be enough for Asia to emerge from its slump unless Japan, the region's most important economy, gets with the program.

The world's number-two economy remains stuck in a deep depression, and years of urging Tokyo to do something about its economy have yielded scant progress. Dealing with Japan's economic malaise may well turn out to be Rubin's biggest -- and potentially most sobering -- challenge yet.

"Japan has to make its own decisions," he told reporters, said. "All we can do from the outside is to express those things in our own terms."