The setback in Asia

So far, the best way to be wrong about Asia has been to expect a quick end to the region's financial crisis. Conditions keep getting worse.

No one wants to sound alarmist. No one wants to add worldwide panic to Asia's list of troubles. But no one should pretend that the situation is other than serious.

Currencies collapse

The crisis began with collapses last year in the currencies of Thailand, Malaysia, the Philippines, Indonesia, and South Korea. Now asset values are under pressure not only in those countries but also in Japan, Hong Kong, and China.

A crucial question is whether China will devalue the yuan, as it did in the 1980s, in order to keep Chinese goods competitive with imports made cheap by currency slumps in the countries of origin. A cheap yuan would add pressure to the Hong Kong dollar and further globalize the crisis.

Asia's problems already affect anyone with oil or gas for sale. The region was the hotbed of present and future growth in demand for energy. Much of that demand was supposed to have been for transportation fuels.

So what now? All anyone can say with confidence is that, for the next several quarters if not years, Asian oil and gas demand won't live up to rosy expectations prevalent until about the middle of last year. As the Forecast and Review report beginning on p. 57 points out, demand in Asia will follow economic activity. At the moment, economic activity is impossible to predict.

Economies don't need to fall with currencies. Obviously, however, economic adjustments were in order in Asia. The currency crises brought belated attention to the overbuilding and overborrowing that fostered them. A slowdown had to occur.

Yet fundamentals of growth remain in place: billions of people emerging from preoccupation with subsistence, deploying new tools of democratic capitalism (or something closer to that ideal than what they had before). Whatever the depth and duration of the current lull, people now burning bagasse for light and heat will still want electricity when they learn about it. Then, as long as they're free to hope, they'll want television sets for their newly illuminated dwellings, then VCRs, then computers.

But will Asians remain free to hope?

The current setback to Asia's economic miracle has certainly discouraged investors, whose flights to safer havens have jolted values of financial and physical assets. But the effect on Asians themselves ultimately will determine how long the problem lasts and how much long-term damage it inflicts on economies and energy demand.

In the worst possible case, the setback may tempt Asians to lose hope in the creative potential of capital at risk, goods in trade, and people at work and to surrender their ambitions to retrograde central planning. That would be disastrous. It would forestall a decade's worth of progress-progress that couldn't have happened without liberalization of markets and movement of political systems toward democracy. But reversals happen in politics just as they do in economics.

Losing confidence

Already, Indonesians in particular seem to have lost confidence. They're hoarding goods in an economy that turns out to have been manipulated to the enrichment of President Suharto's family and friends. When he announced last week that he would run for a seventh 5-year term in office, the Indonesian stock market caved. In that beautiful and bountiful land, a political reckoning must surely lie ahead. After Suharto, however, what?

Elsewhere, too, political fault lines will appear under pressures of the moment. In response, will Asians continue to link their destinies to their own energies, investments, and creativity? Or will they lose hope and submit their fates to the false promises of unbridled bureaucracy? The answer will define the difference between a short-term market correction and a wholesale reversal of Asian progress.

The problem is economic. Its dimensions depend on politics.