Rupiah Slippers

The Dorothy trick doesn't seem to be working.

In "The Wizard of Oz," she clicked her ruby slippers three times, and poof! Right back in Kansas.

But just when this weird Asia crisis seems ready to mend and we can go back to Kansas where everything is normal and stock prices go up - poof! We open our eyes, and we're in some place like Indonesia, where the local currency, the rupiah, is slipping faster than the Lion's courage.

It seemed, early last week, that South Korea and its troubled economy, would take the international bailout package and start patching things up.

Then Indonesia's President Suharto thumbed his nose at the requirements for his country's $40 billion bailout. And Wall Street wobbled like a scarecrow, suffering its worst weekly point decline ever.

This must be Oz. How is it that with the US economy moving like a champ - with record low interest rates, record high employment, oil prices sliding, and inflation vaporized - Wall Street investors dive for cover when Suharto stamps his feet?

It comes to two questions. How much? And, who?

No one really knows how deep the Asia problems run. Banks and companies there are notorious for hiding debts, billions of dollars worth. And no one knows how closely these countries businesses are linked.

For example, Peregrine Investments - last year, an extraordinarily prosperous Hong Kong investment bank - this year seems on the verge of collapse, in part because it does business exclusively in Asia, and in part because it is owed $270 million by an Indonesian business.

The more we see of the Asian problem, the uglier it gets and the more impact it could have on US companies.

Alan Greenspan, chairman of the Federal Reserve, mentioned "deflation" recently, and some analysts think he was not warning of deflation in the US economy but of forces beyond his control. The deflation coming out of Asia - with its falling prices - could affect the US in ways beyond the Fed's grasp.

This is nothing like we've ever seen. The Mexican peso crisis, earlier this decade, and the Latin American debt crisis of the 1980s were both confined to relatively isolated economies.

But the Asia crisis covers an entire region, one that accounts for about a third of the world economy. And no one knows how deep the damage will run, its impact on the US, or whether the $100 billion in bailout packages from the International Monetary Fund (IMF) will work.

Which takes us to "who." The IMF may not have enough money. So the Group of Seven big industrialized democracies, including the US, will have to step in with more billions.

The G-7 countries want very much to keep Asian economies afloat. Their banks have huge loans in the region. And, in the US, at least $1 trillion in Americans' retirement money is stuffed into a stock market that, Friday, showed no tolerance for turmoil.

But how much? Would the G-7 pony up an extra $100 billion? $300 billion? (The US savings-and-loan bailout of the 1980s cost about $500 billion.)

Wall Street's skittishness aside, things are looking up. South Korea's problems have apparently bottomed, and Indonesia will likely toe the line.

But expect more volatility in financial markets. It looks increasingly as if Kansas is the dream, and Oz is the real thing.