Stop exaggerating Asia's troubles

The economies of Southeast Asia are in varying degrees of trouble....As their economies grew so rapidly, many of their political institutions did not keep pace. The result has been corruption, a lack of transparency, inadequate supervision of banking and insufficient investment in education to train the next generation of workers and engineers.

But none of those shortcomings is new, and none prevented the Southeast Asian economies from progressing from poverty toward middle-class success with historic swiftness. The tiger economies, in other words, did many things right, and continue to do many things right. Their savings rates are high; their fiscal policies are responsible. They invested heavily in public health and primary education. They opened their economies to trade and foreign direct investment.

Many of the fundamentals were and remain sound. the question now is how quickly these nations can correct their admittedly real shortcomings and return to a path of growth.

All of them, to successfully evolve into higher-tech, higher- income economies, will have to reform their political systems in ways that will discomfort entrenched elites. They will have to democratize, regulate more evenly and openly, get serious about public corruption. But if their troubles are falsely exaggerated, the recovery could take far longer than necessary.

Some outside investors and would-be saviors now are calling for draconian treatment: Banks should be shuttered, budgets slashed, interest rates jacked up. Overdoing such remedies could send the region into a prolonged and unnecessary recession. That would have grave human costs in Asia, and it would hurt the U.S. economy, too.

Jeffrey Sachs, a Harvard economist whose credibility is bolstered by the general warnings he issued before last July's crash, now cautions against an overreaction.

"Asia's long-term growth prospects are real," he said at an Asian Development Bank conference in Washington last week. "There is work to be done, but no reason why this financial crisis should turn into a prolonged contraction -- unless misguided policies were to make it so."

-- The Washington Post