Worrying signs of Asian relapse revive crisis

Worrying signs of Asian relapse revive crisis

PRAGUE (Dow Jones): Asia is looking sick, again. Many thought
it couldn't happen again, but stock markets are down more than 20
percent from peak levels, currencies are sliding, and parts of
the region are facing political turmoil.

These symptoms - unnervingly similar to those Asia suffered
during the crisis three years ago - confront policy makers at the
annual International Monetary Fund and World Bank meeting in
Prague.

Some of the problems are global, like the nefarious effects of
surging oil prices on Asian markets.

But of greater concern is the failure of many governments to
make sufficient progress on reforms since the crisis of 1997-1999
that pushed most of the region into deep recession.

Recently it has become clear that a cyclical economic recovery
over the past 18 months has masked backsliding on restructuring
crucial to fighting future infection.

For now, the IMF remains sanguine about Asia's prospects, and
in its World Economic Outlook issued this week was upbeat about
its likely growth path. It forecasted a pickup in real gross
domestic product growth to 6.7 percent in calendar 2000 from 5.9
percent in 1999.

And the Fund expects the region will expand a healthy 6.6
percent in 2001.

Market observers, however, are more wary. "It may be a bit
premature to suggest another Asian currency crisis is looming in
the wings, but there is no doubt the recent and pervasive
weakness in this region against the dollar is a cause of
concern," Morgan Stanley Dean Witter said in a research report.

MSDW said weakness in the currencies of Southeast Asian
nations in particular would, if it continues, compromise their
ability to service foreign debts that are still mostly
denominated in U.S. dollars.

"In addition, the sharp downturn in many units raises
significant obstacles to the growth outlook for this area, a
situation that is rendered even more worrisome given the sharp
runup in energy costs over the past few months," the report said.

This along with volatility in U.S. asset markets and massive
gyrations in the currencies of industrialized nations makes
Asia's position potentially even more precarious.

But the changing health of region is best illustrated by South
Korea's almost overnight transformation from poster child of the
Asian recovery to an emergency-room economy.

South Korea, whose economy shrank 6.7 percent in 1998 before
expanding 11 percent in 1999, had attracted massive foreign
direct and portfolio investment over the past year.

But as the 15 percent crash of the benchmark index of local
stocks over the past six sessions and coincident 1.7 percent
slide in the Korean won has shown, investors' love affair with
Korea may be over.

Indeed, Korean Finance Minister Jin Nyum Friday described the
economy as "not good." He said the government needs another 50
trillion won to prop up banks still suffering from the near
collapse of the Daewoo Group.

Jin said the government wants to use public money - subject to
approval from the National Assembly - to increase the size of an
industry bailout fund to 149.3 trillion won.

"I am very sorry," Jin told a press conference. "I apologize
to the public and the National Assembly for the need to raise
additional public funds."

Foreign investors were already rattled after Ford Motor Co.
last week withdrew its bid for debt-laden Korean car maker Daewoo
Motor Co. when a deal seemed imminent.

Authorities selected Ford as the preferred buyer ahead of
proposals from General Motors Corp. (GM) and a joint bid from
DaimlerChrysler AG (DCX) and Hyundai Motor Co. Ltd. (Q.HMC).

Ford pulled out after months of due diligence that industry
analysts say uncovered widespread accounting discrepancies.
Rather than revise its bid to less than $3 billion from the $7
billion Daewoo creditors wanted, they say Ford dropped out.

Add to this the political uncertainty in Thailand ahead of
November elections, the hostage crisis in the Philippines, and a
spate of bombings in Jakarta, and there are at least some of the
ingredients of the crisis.

Even with these warning signs, the IMF and World Bank are
unlikely to deliver anything more than a ritual reminder for Asia
to maintain the pace of reforms.

That means the potential for another crisis remains.