`I TOLD you so.'' That, in effect, is what economist John Williamson has just said to South Korea, Taiwan, and Hong Kong. ``One has to rub the point in,'' he joked in a telephone interview.
Two years ago, Mr. Williamson and Bela Balassa, a colleague at the Institute for International Economics in Washington, wrote a study charging that the currencies of all three of these newly industrialized countries (NICs) were significantly undervalued. The three nations had erred in the preceding two years in pegging their currencies closely to the dollar. Thus these ``Asian tigers'' would gain in economic competitiveness. Korea and Taiwan would generate excessively large trade surpluses that would annoy their trading partners and make poor use of national resources.
Hong Kong would allow its trade surplus to expand its money supply rapidly, thus producing greater inflation, Williamson and Mr. Balassa further predicted. Korea and Taiwan might, eventually, also suffer worse inflation.
The two economists urged all three countries to allow their currencies to appreciate and to stimulate domestic demand. Korea and Taiwan should dismantle import controls, they suggested. Hong Kong does not have such controls. But government policymakers in the three NICs did not follow the advice, at least not immediately.
``They were a bit indignant,'' Williamson recalls. ``The Koreans, they really took it as an affront.''
(Considering that Japan and West Germany have also been reluctant to revalue their currencies, ``we shouldn't be too critical of the Koreans,'' he adds.)
What Williamson and Balassa forecast has come upon these NICs. Hong Kong has 10 percent inflation. Korea had a current-account surplus of $14 billion in 1988; Taiwan, a $10 billion surplus.
As a result, both Taiwan and Korea stand in risk of being labeled ``priority countries'' under the Omnibus Trade law passed by Congress last year. That law requires the administration to single out countries by May 30 for the much-feared ``Super 301'' provision, under which the United States trade representative identifies a range, or pattern, of allegedly unfair trading practices. The trade representative must then negotiate with these countries over three years in an attempt to eliminate such practises that significantly slow or deny market access. If there is no progress, the law calls for US trade retaliation.
To the average American, this Super 301 threat may be obscure. But it is almost daily in the headlines in Seoul or Taipei. Prosperity there has been built on a rapid expansion of exports.
When C. Fred Bergsten, director of the Institute for International Economics, landed in Seoul last month to give some lectures, a host of reporters met him at the airport, asking if he thought Korea would be labeled a ``priority country.'' Mr. Bergsten didn't have official knowledge of a decision.
Actually, these NICs have in more recent times made substantial economic adjustments to trim their trade surpluses.
Korea has liberalized its imports. When inflation is taken into account, it has appreciated its currency, the won, by 19 percent against the dollar since the end of 1986, Williamson reckons.
But the action was too late to prevent an inflationary boom.
Taiwan, which started appreciating its exchange rate earlier, has boosted the value of its New Taiwan dollar 17 percent since 1986 - again, considering relative inflation. It has also liberalized imports. Its earlier action, Williamson figures, has meant less inflationary boom than in Korea or Hong Kong. Also, Taiwan's current-account surplus fell from $18 billion in 1987 to $10 billion last year.
Hong Kong has maintained its exchange rate against the dollar unchanged. Williamson says its authorities did its citizens ``a grave disservice'' by not pegging the colony's dollar to a ``basket'' of other currencies. The result is high inflation.
Williamson holds that both the Korean won and the New Taiwan dollar are no longer overvalued. Thus, together with import liberalization, the balance of payments of both countries should move substantially toward balance. The adjustment process in Hong Kong is incomplete, he says.
Mr. Bergsten expects the Korean surplus to tumble perhaps $6 billion or $7 billion this year.
An analysis by Morgan Guaranty Trust Company suggests, contrariwise, that both Taiwan and Korea need more currency appreciation and import liberalization.
A few years ago such analyses by American economists of these bustling Asian countries would have been rare. But these NICs, even with few natural resources, have enjoyed rapidly rising standards of living and exports. Korea, for example, has a per capita income of about $4,000, about one-fifth of the level of the advanced industrial countries. The three could have a current-account surplus together of $15 billion to $20 billion this year. They have become middle economic powers. With that new status, they are being pushed hard to behave like economic adults.