For the moment, the luster is off Asia's once-booming economies, and the effects will be felt this year by businesses throughout the US.
Like the financial pressures that swept Latin America in the wake of Mexico's devaluation in 1994, exchange rate pressures have spread to other emerging markets, from Argentina and Brazil to Central Europe and Russia. A global economic slowdown is under way. Are US exporters facing disaster? Probably not, though there is ample reason for concern.
While currencies in emerging markets are vulnerable across the board, Asia holds the key. Economic crises in Thailand and Indonesia have drawn IMF-backed support packages of $17 billion and $38 billion, and Korea $57 billion. Most Asian currencies have fallen by 12 to 60 percent in the past year. Layoffs are spreading from finance to construction to manufacturing. The region's economic giant, Japan, continues to limp along with growth of barely 1 percent.
Much of what happens in Asia hinges on Japan. Due partly to high savings, the country's financial system enjoys a margin of security. But pressure will mount if large loans to Southeast Asia and Korea go bad, or if corporate profits fall because of slow exports to Asian markets.
While the challenges facing Asia are serious, they also need to be put in perspective. Japan's growth is anemic, Thailand's economy will be flat, and Indonesia's will shrink - but most other Asian economies are expected to grow between 3 and 5 percent in 1998. That's a big comedown from the 7 to 10 percent rates of recent years but still respectable.
What does this mean for US exports? Look for trade deficits with Asia to rise sharply. Through the first half of 1997, California's exports to the Association of Southeast Asian Nations (ASEAN) fell 9 percent, and exports to Asia as a whole dropped 5 percent.
But sometimes only crisis can bring about change. Asia's growth was fueled by positive factors such as high savings, a commitment to education, and stable macroeconomic and policy environments. It also was funded by an enormous influx of credit and capital - more than the region could effectively manage or absorb. Too much money and loose financial oversight made for poor economic decisions.
What to do
Part of the answer to Asia's problems is already in place - courtesy of the IMF. Markets must be opened to domestic and foreign competition. Barriers to direct foreign investment must be reduced and capital markets liberalized. Strengthened supervision of financial institutions is essential. So is improved corporate governance and transparency in business and lending practices. These are policies the US has championed for years.
And Asia is listening. Indonesia is closing 16 banks and has committed to substantial reform. Korea is closing 14 of 30 merchant banks, and Thailand is closing 56 of 58 suspended finance companies. Doors are being opened to foreign participation in all three nations' financial markets. This is the beginning of a recovery and restructuring process that will take until mid-1999, at the earliest.
In Mexico, rapid recovery from crisis was due in part to decisiveness in addressing problems. Japan, by contrast, has wallowed in near-recession since 1991 because it didn't try to resolve its problems through financial and corporate restructuring. Asian countries must act quickly.
The US Congress has shown a lack of global vision - the worst example being its failure to pass fast-track legislation. Yet the Asia-Pacific Economic Cooperation (APEC) summit's pledge to accelerate opening in nine sectors is an encouraging sign that Asia so far is not backing off its commitment to open trade. The WTO agreement on financial services is another positive sign of support for freer markets.
Asia and its imports of US products will come back - though not to the heady levels of recent decades. Healthy economies in North America and Europe can help Asia's recovery by absorbing imports. The IMF also merits our support. US businesses should consider diversifying their export markets and strategically targeting Asia's stronger markets. Access to trade finance will be vital.
Exporters who are reliant on Asia will be hurt in the near term. Even at diminished levels, however, Asia presents a huge market. After a difficult 1998, US exporters should expect improved growth and new opportunity in 1999.
* R. Sean Randolph is director of trade for the State of California.