US flexes powers of persuasion
'Keep markets open' is the US message at economic summit. But is Asia listening?
WASHINGTON — A year ago, President Clinton dismissed financial turmoil in Asia as "a few little glitches in the road."
Now, as Pacific Rim leaders gather in Malaysia for their annual economic summit, that regional glitch has turned into the worst global economic crisis in a half century - and thus will provide one of the most pronounced tests yet for American leadership.
With Iraq uppermost on the US agenda, Mr. Clinton has dispatched Vice President Gore to deliver Washington's message of economic reform and recovery to Asian-Pacific trading partners. But whether it's Clinton or Gore voicing the message, the challenge is the same: how to keep up the momentum for change when the temptation is to seek safety behind protectionist gates.
The work to be done is nothing less than "how to restructure the world economy," says Clyde Prestowitz of the Economic Strategy Institute here. Given the immensity of that task, says this former Commerce Department official in the Reagan administration, "people desperately want the United States to lead."
Although Clinton was late responding to the crisis in Asia, since September he has outlined a plan for world growth into the next century. At its heart is classic capitalistic theory: Cut interest rates and grant corporate debt relief, for instance, so that struggling economies can grow their way out of the current crisis.
But quick steps such as these must be accompanied by lower trade barriers and new safeguards for financial markets (to prevent the currency and securities fluctuations that have hurt so many countries). To that end, Clinton has asked US and world financial leaders to come up with a new "international financial architecture" by the new year.
'Domestic' guy at the helm
But can American leadership steer the world out of its worst economic crisis since World War II? The task represents a different sort of test for a president whose "heart and soul is still with domestic issues," says Leon Panetta, Clinton's former chief of staff.
The president is also distracted now by Iraq, as well as impeachment hearings that continue this week. Moreover, his decision to forgo this week's Asian-Pacific Economic Cooperation (APEC) forum - an organization he dragged from obscurity by lifting it to the summit level five years ago - disappointed some Asian leaders.
"It's very unfortunate. [Clinton's attendance] would have shown greater US commitment to the Asia-Pacific," Philippine Foreign Minister Domingo Siazon told the Reuters news agency. Asked how Clinton's absence would affect the summit, he said: "There's a symbolic difference. It's the biggest economy, after all."
The US message at APEC is two-prong: Now that the financial turmoil has subsided, it's time to stimulate growth - but under the protection and support of democratic institutions in Asia.
Secretary of State Madeleine Albright made that latter point in Malaysia over the weekend, by meeting with the wife of Anwar Ibrahim, Malaysia's former finance minister. Mr. Anwar was fired and then put on trial on corruption and sodomy charges after a falling out with APEC host, Prime Minister Mahathir Mohamad, over political and market reforms. Anwar denies the charges, and the US has complained of an unfair trial.
Malaysia's prime minister has shunned the economic reform prescribed by the US and the International Monetary Fund, and in September he put government controls on capital and fixed the Malaysian dollar.
Neither is he alone in resisting the creation of a US-style free-market economy. Japan steadfastly refuses to lower tariffs in two of nine markets targeted for opening by APEC. Agreement on the nine sectors is the main goal of the APEC meeting, whose 21 members' chief aim is to break down trade barriers between their countries.
Winston Lord, Clinton's former undersecretary of state for Asian affairs, hopes the US will use the leverage of America's strong economy - an export market essential to Asian recovery - to persuade Japan and other countries to stay the course on free trade.
"We're piling up significant trade deficits with Japan and China," says Mr. Lord.
The US, he says, could argue that it will keep wide access to its markets if other countries show they're willing to sacrifice, too.
Will US pull up the drawbridge?
But it's questionable whether the Clinton administration can guarantee open markets at home, economists say. With the trade deficit ballooning, Clinton is under pressure to stop the flood of cheap imports. For instance, the steel industry - which helped get out the vote for Democrats in the midterm elections - has seen Japanese hot-rolled-steel imports increase fivefold this year.
"With imports cheaper, that will lead to more protectionist tendencies in the United States," says Steven Radelet, director of macroeconomics at the Harvard Institute for International Development.
That means Clinton will face fierce opposition on fast-track trade-negotiating authority and on Latin American, African, and European trade initiatives he plans to bring before the new Congress.
While economists praise the US - especially Federal Reserve chairman Alan Greenspan and Treasury Secretary Robert Rubin - for their work in recent months, they worry the US will not maintain he long-term commitment needed to reform the global economy.
"Right now, we're doing well," says Mr. Prestowitz, "but there is much more to do."