CRS Report
Asian Financial Crisis: An Analysis of U.S. Foreign Policy Interests and Options

Richard P. Cronin, Specialist in Asian Affairs, Foreign Affairs and National Defense Division January 28, 1998

Summary

The sharp reversals of fortune experienced by most East Asian economies since the first wave of currency devaluations swept the region in July 1997 have the potential to negatively affect a range of U.S. regional and other foreign policy interests, in addition to the expected detrimental effects on the U.S. economy. As of late-January 1998, several Asian currencies and stock markets remained highly unstable and depressed by fifty percent or more of their mid-1997 values. Although some observers also see the crisis bringing potential benefits for U. S. interests in the form of economic reforms and pressures for more democratization, even the most optimistic analysts agree that the process will a long term one, at best.

One of the most important non-economic impacts on U.S. interests could be a rise of political instability in a region whose leaders have largely based their legitimacy on promoting rapid economic growth and an expanding economic "pie" to the benefit of their citizens. If regional growth continues to decelerate, existing social class, ethnic, and religious fissures may widen in a number of countries, most especially in Indonesia. These developments may be exacerbated by austerity and economic reforms demanded by the International Monetary Fund (IMF) in return for financial rescue packages, leading to a nationalist backlash against economic globalization as well as a rise in anti-American feeling. Alternatively, some analysts express hope that the crisis may provide an opportunity for "creative destruction," i.e., the adoption of much needed structural reforms, including greater accountability and transparency in banking systems and more open markets. Most, however, agree that austerity and shortages of hard currency . will cause temporary setbacks for trade liberalization in the most seriously affected countries, and possibly for the region as a whole.

While the crisis does not appear to pose direct risks to U.S. regional security interests, a prolonged economic decline could generally undermine regional cooperation and foster confrontation over long-standing territorial and other disputes. South Korea's economic problems and the view of many South Koreans that Washington's influence lies behind the IMF's "medicine" could significantly complicate U.S. efforts to resolve Korean Peninsula issues. Some also see the crisis working in the longer term to enhance China' s status and influence.

The crisis has direct legislative implications due to a pending request for the appropriation of $3 .5 billion in support of a New Arrangements to Borrow (NAB) for the IMF and the likelihood that the Administration will request substantial additional funds for the IMF or IMF-led stabilization initiatives. In addressing these funding requests Congress is likely to be divided between those who will emphasize the need for U. S. leadership and the importance of a "stitch in time" before the crisis spreads further, and an opportunity to promote needed reforms and market opening, and those who will call for letting the international banks absorb the cost of past risky loans, and letting market forces weed out weak companies and unsound economic policies.

Background to the Crisis

The crisis began this past July in Southeast Asia when foreign bankers, investors, currency speculators, and market analysts lost confidence in Thailand's ability to cope with a deteriorating economic situation, including a rising trade deficit and a growing international debt that had reached 50 percent of Gross Domestic Product (GDP.) After depleting its hard currency reserves to counter speculative attacks on the baht, which had been pegged to the U.S. dollar, the Thai government had little choice but to adopt a managed float of its currency. The resultant plunge in the baht led to a series of forced currency devaluations that soon swept through Indonesia, Malaysia and the Philippines, and then spread to South Korea and, to a lesser extent, Singapore, Taiwan, and Japan. 1

Since late October 1997, South Korea's financial meltdown has been accompanied by a continuing downward spiral of currency devaluations in Southeast Asia, often spurred by local companies and individuals selling local currency for U. S. dollars, and continuing sharp declines in the value of stocks, real estate, and other assets. The most seriously affected countries, Thailand, Indonesia, and South Korea, have sought assistance from the International Monetary Fund (IMF) and major economic partners, including Japan and the United States.

Economists and financial analysts differ somewhat over the exact causes of the collapse of currency and stock values and the likely severity and length of the setback for East Asia's much vaunted economic dynamism. While each economy's situation is distinct, most explanations for the crisis center around a combination of factors including:

Credit is a vital lubricant of every modern economy and companies everywhere gain leverage by using borrowed funds to finance investments in productive assets. In East Asia in recent years, however, companies, banks, and governments unwisely piled up short-term debt on the unfounded assumption of never-ending growth. Since the mid-1990s these excesses were substantially facilitated by the easy availability of low-cost foreign capital, often at lower interest rates than domestically available credit. When profit expectations were undermined by developments such as competition from lower cost production in China, a glut of office space and hotel rooms, or a collapse of computer chip prices, bankruptcies soared.

In magnitude, the non-performing Asian debt has been estimated by David Hale, Chief Global Economist at Zurich Kemper Investments, at 20 to 25 percent of outstanding bank loans in Thailand, 10 to 20 percent in South Korea, and 5 to 10 percent in other regional countries, not counting Japan. Chinese banks also suffer from bad-loan problems in the range of 20 percent or more of total lending, mostly owed by money-losing state-owned enterprises (SOEs), but China's currency is not readily convertible, most of its foreign debt is long-term, and it has a substantial current account surplus and sizeable hard currency reserves.2

In the face of falling profits and mounting bankruptcies on the part of companies and financial institutions in Southeast Asia and South Korea, foreign investors dumped regional stocks and foreign lenders stopped rolling over their short-term loans. The unchecked decline of Asian currencies and asset values compounded the crisis by effectively multiplying the burden of foreign debt service obligations. By mid-December, the chain reaction of collapsing currency and stock prices in Asia appeared to be on the brink of spreading to the broader international financial system.

Consequences of the Freer Flow of Capital

Many of the excesses on the part of Asian governments, banks, and corporations would not have been possible except for the comparatively recent globalization of capital markets, including the relaxation of previous controls in Asian countries on international borrowing by banks and private corporations. By one estimate, 90 percent of international transactions were accounted for by trade before 1970, and only 10 percent by capital flows. Today, despite a vast increase in global trade, that ratio has been reversed, with 90 percent of transactions accounted for by financial flows not directly related to trade in goods and services.3 Most of these capital flows are accounted for by highly volatile portfolio investment and short-term loans.

In general, financial liberalization measures in Asia-largely a product of the 1990s-were not accompanied by the creation or strengthening of institutions to monitor and regulate Asian banking systems. Vast outflows of investor funds from the strong U.S. economy in search of higher returns, and the recycling of huge Japanese trade surpluses in the form of bank loans and investments in Asia, contributed to a dangerous buildup of debt and excessive property development and manufacturing capacity. In testimony before the House Banking and Financial Services Committee on November 13, Federal Reserve Chairman Alan Greenspan noted with understatement that "In retrospect, it is clear that more investment monies flowed into these economies than could be profitably employed at modest risk."4

Crisis Partially Made in Japan

Taking a long view, some analysts see the current crisis as the outcome of a growing distortion of the global economic system rooted in the efforts by Japan and other high-savings East Asian economies to protect domestic local industries from imports while sustaining high levels of exports, particularly to the more open, low- savings U. S. economy. In a sense, it is argued, an economic "bubble" that built up in Japan in the late 1980s and burst in the early 1990s, reemerged in the rest of Asia as a result of the failure of the Japanese Ministry of Finance (MOF) to take the necessary steps to liquidate hundreds of billions of dollars worth of non-performing loans. Rather than forcing Japanese banks to sell assets to cover their losses or take the politically unpalatable step of using public funds for a financial system bailout, as the United States did to deal with its savings and loan crisis of the 1980s, the MOF made it possible for banks to disguise the decline of their assets and to continue to make profitable but risky loans to the fast growing Asian economies.5 By one account, Japanese lending to Asia alone rose from $40 billion in 1994 to $265 billion at present, much of it for speculative property investment and other doubtful purposes.6

Some judge that the Japanese finance ministry has aggravated the problem with an expansionary monetary policy that generally has kept the yen undervalued and exports and resultant dollar earnings at a high level.7 In particular, it is argued, the decline in the official discount rate from 6 percent in 1991 to 0.5 percent at present has made it compellingly attractive to Japanese banks in effect to recycle those export-generated surplus dollars to the fast growing Asian economies.8

The problems of Southeast Asian countries likewise were exacerbated by growth differentials between the United States and Japan, which also had contributed to a year-long appreciation of the dollar against the yen. Since their currencies were "pegged" within a narrow band to a basket of currencies dominated by the dollar, their exports became comparatively more expensive. By the summer of 1997, foreign investors began to have doubts about the ability of Thailand and other Southeast Asian countries to repay their loans and maintain the existing value of their currencies. These concerns sparked a flight from the Thai baht and other Southeast Asian currencies, and a reluctance by foreign banks to roll over loans or advance new credit to governments and private industries in economies that were increasingly strapped for foreign exchange.

Impact of Competition from China

Competition from China also played a significant role in the weakening export growth of the newly industrializing Southeast Asian countries. By about 1992 China had become the hottest target for Japanese and other foreign investors due to its comparatively high skilled, low cost labor force, and its extensive investments in economic infrastructure. China' s rising attractiveness to foreign investment pitted it in direct competition with other Asian producers for the same export markets. A devaluation of the artificially pegged renminbi 9 in 1994 directly undercut the exports of the newly industrialized countries of Southeast Asia, especially Thailand, Malaysia and Indonesia, putting sharp pressure on their balance of payments and foreign exchange reserves. The competition from China exacerbated other competitiveness problems of rising labor costs and transportation and infrastructure bottlenecks in the Southeast Asian countries.

Scale and Scope of the Crisis

The sharp decline in currency and stock prices has affected almost every Asian country, but thus far has fallen hardest on South Korea and Southeast Asia's newly industrializing economies (NIEs) - Thailand, Indonesia, Malaysia and the Philippines. South Korea's brush with financial collapse in mid-December sent a new round of shock waves and currency devaluations through Southeast Asia. By the end of 1997, the currencies of the four Southeast Asian NIEs had lost between two-fifths and two-thirds of their value against the dollar as measured against June 30, 1997 exchange rates, with Indonesia the hardest hit and the Philippines and Malaysia the least. Indonesia's rupiah has continued to drop during January 1998, at one point falling to only 15 percent of its pre-crisis value.

Currencies in Asian countries with higher hard currency reserves and/or better regulated financial systems have suffered significantly less. The Hong Kong Special Administrative Region (SAR) has thus far successfully defended the Hong Kong dollar against speculative attack, but the necessary rise of interest rates has caused a precipitate fall in property prices and the stock market and raised questions about its future economic prospects.

Singapore, with strong regulation of banks and property investment, has seen its currency drop about 18 percent in value against the U.S. dollar. Taiwan, which has large reserves of hard currency, was largely untouched by the initial flight from Asian currencies, but made a tactical decision to marginally devalue the New Taiwan Dollar. The government's action, coupled with hedging by the private sector, has devalued Taiwan's currency by about 18 percent from its previous peg against the U S dollar

South Korean Crash. South Korea, the most industrialized among the affected countries, has in some ways fallen the furthest, with bankruptcies among major banks and industrial conglomerates (chaebol) and a stock market crash. 10 By late December South Korea's currency, the won, had lost more than half of its value against the dollar. The won continued its downward slide as estimates of the country's short term private and public debt obligations rose from $62 billion to $100 billion, 11 and then again to well over $100 billion. In late December the Korea Development Bank abruptly withdrew a 310 billion bond offering after rating services lowered its sovereign debt to "junk bond" status.12

South Korean banks and companies found it difficult to purchase enough foreign currency to cover day-to-day operations and foreign lenders stopped rolling over short-term loans, raising questions about how the country would meet its obligations to foreign creditors. Initial loans from a multi-year, $57 billion IMF rescue package, the largest ever organized for any country, appeared inadequate to cover South Korea's needs. At year's end the steady slide appeared to abate as a result of a hastily organized "Christmas present" of$10 billion. The accelerated funding reportedly was orchestrated by the Clinton Administration, as was an agreement by major U.S., European, and Japanese banks to roll over about $15 billions in loans that were coming due within the next month. 13

Japan On the Edge. Japan's problem is not with its currency-which many judge has been deliberately undervalued as a result of Japanese monetary policy since 1995-but a massive overhang of non-performing debt in its banking system that has kept the economy in the doldrums for most of the decade. Apart from a short-lived growth surge in 1996, Japan has averaged less than one-percent real GDP growth since 1991. An effort by the financial authorities in mid-January 1998 to get the banks to give a better accounting of the bad or questionable loan problem yielded an estimate of about $575 billion at prevailing exchange rates-nearly three times the long-standing official figure. Even this figure is doubted by private analysts due to the lax standards for reporting and the various means that problem loans can be disguised by weak banks.14 The total bad loan problem is significantly larger than the U.S. savings and loan problem both in absolute terms and as a share of GNP.

Japanese banks are the largest holders of Asian debt, both performing and non- performing. Although some of this exposure reportedly has been reduced in recent months, Japanese banks held $83.9 billion in debt from Thailand, Indonesia, and South Korea, the three most ailing economies, as of the end of 1996. In all, Japanese banks had loaned $265 billion to Asia, or 40 percent of their total foreign lending, as of a year ago 15

Although Japanese monetary policy has kept interest rates low, the precarious situation of the banking system has inhibited the ability of banks to make new loans, creating a condition popularly called kashishiburi (roughly translates as "credit crunch.") The squeeze has especially affected small businesses. Out of concern that a liquidity crisis would drive otherwise sound businesses to bankruptcy, the Japanese Ministry of Finance in late December 1997 postponed the imposition of new capital requirements that were intended to bring Japanese banks into line with international capital adequacy standards as established by the Bank for International Settlements. While this move may alleviate a growing credit crunch, it further undermines the faith of international investors in the ability of the Japanese Ministry of Finance and the political leadership to make the hard decisions that are required to deal with the banking system mess. The action drove stock prices down below the benchmark 15,000 level on the Nikkei average, the point at which analysts estimate that unrealized capital gains on stocks no longer contribute to the capital base of Japanese banks, thus raising further questions about the solvency of the banking system. 16

Implications for U.S. Regional and Foreign Policy Interests

The Asian financial and economic crisis has implications for a range of U.S. regional, foreign policy and international economic interests, and potentially for U. S. regional security interests. In a larger sense, the U.S. response to the situation is likely to have a direct bearing on perceptions of American leadership and U.S. standing in Asia.

U.S. Interests in Regional Stability and Democratization

The Asian economic crisis has significant potential for negative impact on political stability in East Asia and even in Russia, where the crisis has caused the withdrawal of foreign investment and loans, forcing the government to raise interest rates and threatening to choke off a heretofore hopeful economic upturn.17 Most Asia governments, regardless of their political systems, have come to depend on delivering rapid economic growth as the main underpinning of their legitimacy. For Southeast Asian governments, rapid growth has helped find jobs for a fast growing urban population and satisfied the material aspirations of the burgeoning and politically important middle classes, thus maintaining an uneasy social and political stability. By one accounting, Indonesia needs 6 percent annual growth to absorb 2.7 million new entrants into the labor force every year. With the economy now projected to show no growth or even decline slightly in 1998, a sharp rise in unemployment, with attendant social strains, seems inevitable.18

For emerging democracies such as South Korea and Thailand, growth averaging 8 percent per annum in recent years has generally dampened serious regional and other socioeconomic fissures, kept a lid on labor unrest, and expanded the ranks of the middle classes. A sharp fall from past growth rates may heighten regional social class tensions, and undercut democratic institutions.

Political instability need not be an inevitable consequence of the financial meltdown, but scenarios for unrest are not difficult to imagine. In several Southeast Asian countries, instability could take the form of retribution against Chinese ethnic minorities, which make up a small part of the total population, but control the vast bulk of the wealth and commercial enterprises. Violence between the majority population and the Chinese minority wracked Indonesia in 1965, at the cost of hundreds of thousands of lives-mainly ethnic Chinese. Malaysia experienced serious ethnic rioting in 1969 following a contested national election outcome, which spilled over into Singapore, with its predominantly ethnic Chinese population, as well. Several other potential sources of social unrest lie just beneath the surface in the region, including the growth of Islamic fundamentalism in Malaysia and Indonesia and widespread unemployment among high school and university graduates in the Philippines. In addition, a number of Southeast Asian countries have experienced uncontrolled urbanization and a growing urban-rural income gap that has provided the potential for social conflict. 19

Malaysia's Social Compact Potentially at Risk. In Malaysia, where ethnic Chinese account for about 30 percent of the population, the government of Prime Minister Mahathir Mohamad has promoted ethnic peace by carrying out an affirmative action program for the traditionally less educated, more rural, ethnic Malay majority. The Chinese largely have accepted Mahathir's "New Economic Program" and their own political marginalization because rapid economic growth has taken much of the sting out of programs that favor the Malays. A sharp economic slowdown could intensify the competition for jobs and government contracts, leading to rising ethnic tension. In the end, these developments could upset the country's fragile social compact and the umbrella party status of the ruling United Malays National Organization (UMNO.).

For the time being, Malaysia's social and political stability seems likely to remain intact. Although growth is now projected at 4-5 percent for 1998, half of recent levels, analysts rate the country's economic fundamentals as sound. These include a fiscal surplus, low inflation and low external debt, and a high savings rate.20 Moreover, while Prime Minister Mahathir has railed at foreign speculators for causing the precipitous decline in Malaysia's currency, his Deputy Prime Minister and Minister of Finance, Anwar Ibrahim, presumably with the Prime Minister's support, has quietly engineered pragmatic economic policy adjustments, including an 18 percent cut in government spending for FY 1998, that have reassured the local business community and international lenders.21

Potential Accelerated Succession Crisis in Indonesia. In Indonesia, the world's fourth most populous country, the crisis has raised new questions about the competence and stability of the government headed during the past 32 years by President Suharto. The collapse of the rupiah has led to unusually direct criticism of the government by opposition leaders and technocrats, and food shortages have reportedly sparked riots in three towns in the eastern part of Java, the country' s most densely populated and most politically important island.22

Until the economic crash, the military-backed Suharto regime generally had received good marks from economists and development experts for maintaining strong growth and spreading its benefits to a wide spectrum of the population. In recent years, however, its image has frayed considerably due to high level corruption, including financial scandals involving the president's family, the repression of a populist opposition party led by the daughter of Indonesia' s first post-independence leader, and its heavy-handed repression of the long-festering rebellion in East Timor, a former Portuguese colony forcefully occupied by Indonesia in 1975.

The Indonesian rupiah faired comparatively well in the first wave of Southeast Asian devaluations, in July 1997, then dropped sharply in mid-September as more information emerged about the scale of Indonesia's financial problems and concerns mounted about the commitment of President Suharto to make needed reforms. In mid-December 1997, the Indonesian rupiah plunged further on rumors that President Suharto was in failing health.23

The rupiah continued to slide in January 1998, as the government fought a delaying action against the reforms demanded by the IMF, especially those affecting the interests of companies controlled by President Suharto's children and other relatives, military and civilian officials, and specially favored companies-often owned by figures with close ties to key governmental and military figures.24 In early January, the release of a budget widely viewed as unrealistic and excessively expansionary, was viewed with dismay by financial markets-which feared a suspension of the IMF's aid-and caused a further fall not only of the rupiah but of Asian currencies in general. Analysts judged that the budget reflected a conscious choice between social stability and the expectations of the IMF and financial markets.25

In mid-January, after visits in close succession by delegations led by Deputy U. S. Treasury Secretary Lawrence Summers, Secretary of Defense William Cohen, and IMF Managing Director, Michael Camdessus, President Suharto recommitted his government to the IMF reform program.26 Reportedly, among other commitments, the Indonesian President agreed to carry out specific reforms, including the suspension of a number of infrastructure projects connected to family members and friends, the cessation of discriminatory tax breaks for a foundering "national car" project controlled by his youngest son, the termination of government support for an aircraft manufacturing project, and the ending of food and fuel subsidies. Reportedly the budget for fiscal year 1998 will now be predicated on zero growth, instead of the 4 percent estimate contained in the initial version released in early January.27

While many analysts have questioned President Suharto's willingness to carry out reforms that threaten the structure of his patronage-based government, analysts are equally skeptical about Indonesia's stability if he is no longer at the helm. Since Suharto has no acknowledged successor, his death or resignation could precipitate a power struggle among rival army leaders, perhaps accompanied by street violence involving secular and Muslim political parties, that would impede efforts to restructure the economy and carry out necessary financial sector reforms.

In March 1998, President Suharto is expected to be reelected to a seventh five- year term by a specially convened parliamentary body. Although some analysts speculated that, under the circumstances, the President might decide not to run again, on January 20, 1998, Suharto accepted the nomination of his ruling Golkar party and and hinted that he would choose the controversial Minister of Research and Technology, Bacharuddin Jusuf Habibie, as vice-president. Habibie, a long-time confidant of the President with a penchant for expensive, visionary development projects, reportedly has many enemies and detractors within the military and the Indonesian business community.28 Judgments by analysts that the possible selection of Habibie also would not sit well with foreign investors and lenders, seemed validated by another plunge of the rupiah to its lowest point yet-about 15 percent of its pre-crisis level.29

Even without a major political upheaval, Indonesia's small Chinese minority- perhaps 3 percent of the population-could become the scapegoat target of a violent backlash, since most of the countries failing banks and conglomerates are Chinese- owned. In early January 1998, one prominent international financial analyst, David Hale, of Zurich Kemper Investments, in Chicago, warned of the possibility of an "ethnic pogrom" against the Chinese minority in Indonesia if the financial crisis leads to a political breakdown. "This thing is still very serious," he said.30 Reportedly, Chinese money is already flooding into Singapore's real estate market out of concern that the country may experience a replay of the 1965 period.31 This flight of Chinese capital reportedly has created an angry reaction among the ethnic majority.

Crisis of Governance in Thailand. Successive rounds of currency devaluations have rocked Thailand, the country in which the crisis originated, and brought it to a political crossroads. A constitutional monarchy and an on off-again-on-again parliamentary democracy, Thailand regained a democratic government in mid-1992, after angry middle class citizens took to the streets and forced the reversal of a 1991 military coup.

On the positive side, the financial collapse led to the resignation of the widely disparaged government of Prime Minister Chavalit Yongchaiyudh, which the Economist described as having "been seen as unusually corrupt and incompetent, even by the standards set by some of its predecessors."32 The crisis also tipped the political balance in favor of a new constitution whose provisions aim at reducing political corruption, increasing accountability and transparency, and establishing minimum educational credentials for elective office. Notably, the Army kept to the background but lent its weight to adoption of the new constitution, as did the King, who wields great influence in the country. The new Prime Minister, Chuan Leekpai, leader of the formerly opposition Democratic Party and prime minister during 1992-1995, has been praised for bringing back into the administration technocrats who had guided Thailand's economic takeoff during the late 1980s.

On the negative side, the financial collapse which has devastated Thailand's economy has the potential to exacerbate existing fissures in the society. Potential sources of trouble include a severe urban-rural income gap, a restive urban labor force, a suddenly impoverished middle class, and a potential political backlash by ethnic Thais against the minority of assimilated ethnic Chinese, who largely control the economy. Politically, the return of Chuan to power is only a tentative plus, since his popularly elected administration had been viewed as contributing to Thailand's weakening economic performance prior to 1995. In the fall, when a government change was still being debated, substantial business community sentiment in Bangkok favored a return to a military-backed, technocratic government, as in the 1980s.33 If Chuan fails to turn the situation around, this sentiment may return. More positively, some analysts judge that the effect of crisis will fall less heavily on the still largely subsistence rural economy, and that agricultural exports, balanced by the currency devaluation, will partly offset the decline of other sectors. The situation in provincial towns is said to be more serious than in the countryside.34

Uncertainty in the Philippines. The stability of the Philippines may also be in doubt because of the intersection of the financial crisis with an already uncertain political situation. President Fidel Ramos, who generally has earned good marks for putting the Philippines on a growth path after long being regarded as the "sick man of Asia," cannot succeed himself under the Philippines constitution. While Ramos' reforms have boosted growth, they have also further widened an already large income gap between the rich and the middle classes, on the one hand, and the large mass of Filipinos living in deep poverty, on the other. Comparatively speaking, the Philippines has suffered less than its neighbors, partly because it had less far to fall, but the impact on those below the poverty line has been severe. Because the odds-on favorite for the presidency, Vice-President Joseph Estrada, espouses a populist agenda that sounds hostile to globalization, some analysts have questioned ~'whether democratic politics and globalization can coexist in a developing country like the Philippines."35

Potential for Advancing Democratization. The impact of the crisis on political stability may not be wholly negative. Some analysts project that the crisis will have a healthy effect on the prospects for democracy and better governance. They cite the effective mobilization of angry middle classes in Thailand in support of a new constitution, the reining in of President Suharto's children in Indonesia, and the election of long-time democracy advocate Kim Dae Jung in South Korea as signs of a healthy reaction against the "Asian values" arguments for authoritarianism. According to this line of argument, recent failures of economic management by governments that exhibit varying degrees of authoritarianism will be a boon for democratic values and greater accountability.36

Two realities raise questions about the validity of this view. First, previous limited steps towards more democracy in several Asian countries have, in the opinion of many analysts, led to setbacks for good economic management, as political leaders, seeking to boost their popularity, have promoted unwise economic policies. Most notably, it is argued that Thailand's economic management has suffered from an excess of populism and corruption since the parliamentary elections of 1992-i.e., since the first Chuan administration. Partly in response to this conventional wisdom, the new Thai constitution includes minimum educational qualifications for legislators.

Similarly, the South Korean government headed by President Kim Young Sam, the country's first popularly elected President, has been singularly inept and ineffective in managing the economy. Moreover, because of the impending December 1997 presidential election, the national assembly balked at passing important financial reform measures and thereby deepened the crisis. Second, the short term consequences are likely to be more rather than less social and political conflict, since most of the more authoritarian regimes in Asia lack the institutions for a smooth political transition. Commenting on the replacement of the discredited Chavalit government with the coalition headed by Chuan Leekpai, a senior Thai political leader noted that the ability of Thailand to achieve a smooth power transfer in response to an economic crisis was the result of political openness, but that the same result " probably could not be expected in other countries of the region."37 Even in this instance, some analysts believe that the Chuan government may be the last chance for elected politicians.

Implications for Regional Trade Liberalization

The Asian financial crisis raises serious questions about the prospects for opening up regional markets to U. S. exports, a major and long-standing U. S. foreign policy. On the positive side, at the November 1997 APEC meeting in Vancouver, the leaders agreed to put nine industrial sectors covering global trade totaling $1 .5 trillion on a fast track to tariff reductions in pursuit of the established goal of regional free trade by 2010 for the industrialized countries and 2020 for the developing countries.38 While the Asian financial crisis inevitably dominated the agenda and discussions, many observers took comfort in the fact that the affected countries did not seek to backtrack from their previous commitments.

The conditionality imposed by the IMF for its emergency credits includes requirements that recipient governments end the kinds of collusive practices that have brought about the current crisis, and which have the effect of giving special advantages to favored domestic producers and monopolies, and open up their economies to foreign trade and investment. These are over and above more basic requirements to put their banking and financial systems in better order, achieve budget surpluses, and-somewhat contradictorily-reduce their trade deficits. For instance, the IMF's program for South Korea requires that Seoul agree to a WTO compatible timetable to remove export subsidies and restrictive import licensing, remove arbitrary regulatory barriers to imports, and raise the ceiling on foreign ownership of Korean stock shares.39 The IMF program requires Indonesia to reduce tariff and non-tariff barriers, and eliminate certain import and marketing monopolies, among other trade-related structural changes.40

In the longer term, these developments may pay large dividends in the reduction of trade and investment barriers. In the shorter term, however, the affected Asian countries face hard choices. On the one hand, they need to satisfy the market opening objectives of the IMF, foreign lenders, and investors, view liberalization as a spur to greater economic efficiency. To do otherwise, would jeopardize the very basis for their previous rapid economic growth. On the other hand, they feel a strong desire to pursue policies that they calculate will minimize business failures and preserve employment in sensitive industries and economic sectors, including counter- recessionary government spending and measures-both formal and informal-to discourage imports.

Implications for Regional Security

Even the worst case possibilities for domestic instability in Asian countries do not necessarily pose direct threats to U. S. security interests, but the indirect threats could be significant should affected countries undergo destabilizing internal political turmoil. In his January 27, 1998, State of the Union address, President Clinton asserted a strong linkage between stability in Asia and U.S. security interests. A political breakdown or armed power struggle in Indonesia could engulf Singapore and other regional states in a wave of refugees, embolden regional separatists, or reawaken irredentist claims on Malaysia's states on Borneo, Sabah and Sarawak. A internal Indonesian conflict theoretically could interrupt the free passage of commercial vessels and U.S. Navy ships through the important Sunda and Lombok straits, and jeopardize the safety of thousands of expatriate Americans and billions of U. S. investment. An interruption of oil production in Indonesia could possibly disturb oil markets.

In general, the ASEAN countries have largely shelved their territorial disputes with each other, and these likely would be reawakened only in a worst case situation in which assertive nationalism replaced thirty years of ASEAN cooperation. Some analysts worry more that China might seek to exploit the distraction of the Southeast Asian countries and the postponement of their military modernization programs to seize territory in the contested Spratly Islands. Thus far, China seems to have used the crisis to make a show of support and regional leadership, not aggrandizement.

If the crisis were, however, to lead to internal ethnic conflicts in one or more Southeast Asian states, these could have wider consequences. For instance, an outbreak of ethnic conflict in Malaysia, might cause Singapore to intervene to protect the Chinese minority, which is heavily represented in Johore State, just across the strait. One U.S. military analyst writing in his private capacity, argues that Singapore's force structure, training, and arms procurement programs have been geared not only for self-defense, but also to respond to such a contingency.41 Apart from other significant implications for U.S. security interests, a conflict between Malaysia and Singapore could create an untenable situation for the U. S. naval and air force personnel at the facilities that they currently use on a semipermanent basis, including the former British naval base at Sembawang, on the Strait of Johore.

Some analysts have suggested that American security interests on the Korean Peninsula, where the United States has deployed 37,000 troops, could be jeopardized by South Korea's financial problems. One possibility noted by U.S. officials and private analysts, is the possibility that North Korea might seek to take military advantage of South Korea's problems. Arguing against this scenario are North Korea's food shortages and economic prostration, and Pyongyang regime' s presumed awareness of the near certainty that serious aggression would lead to a devastating American military response.

A less direct but more likely threat to American security interests is the possibility that South Korea may be unwilling and/or unable to play its expected role under a U.S.-North Korea nuclear accord of October 1994, thus jeopardizing U.S. nonproliferation objectives. Under the so-called U. S.-DPRK Agreed Framework, the Clinton Administration agreed to organize the supply of two 1,000 megawatt light water nuclear reactors (LWRs) in return for North Korea's commitment to freeze its existing nuclear program and eventually open up all of its facilities to international inspection. South Korea has informally committed itself to assume about 60 percent of the $5-6 billion estimated construction cost, and a South Korean company is the prime contractor. The overall project is being carried out by the multilateral Korean Peninsula Energy Development Organization (KEDO), but the U.S. is the ultimate guarantor of the project, subject to congressional approval.

Despite various provocations towards the South by Pyongyang, the North Korean regime has met the minimum conditions laid down for moving ahead with the project, and KEDO is ready to begin construction. No serious work can begin, however, until South Korea provides several hundred millions of dollars for the procurement of long-lead components and major construction activities.

Even before the economic crisis ensued, it was unclear how the Korean government would mobilize the requisite political capital to persuade the National Assembly to approve funding for a project that remains highly controversial.42 Now it is unclear where the funds will come from, even if the political will is present. If the project stalls, however, North Korea might react by refusing to abide by its nuclear freeze, or committing new provocations against the South or American interests.

The financial problems of U.S. friends and allies in Asia also seem likely to adversely affect security cooperation and result in some cancellations of arms purchases from U. S . defense contractors, thus impeding regional military modernization programs. Reportedly, South Korean defense officials have indicated their desire to negotiate some relief from the nearly $400 million annual dollar cost of Seoul's host nation support of U.S. forces.43 Several countries reportedly already have canceled or postponed major purchases of U. S. weapons systems.44 Some see the arms cutbacks as benefitting China's presumed ambitions for regional hegemony, 45 while others mal view the cancellations as welcome reduction in what they see as a budding Southeast Asian arms race.

Last but not least, U. S. alliance relationships could also be affected adversely if the United States fails to show leadership, or if its leadership appears to Asian allies to be narrowly geared to protect the financial interests of U.S. banks and investors. In this respect, Asian allies and other affected regional countries will most certainly be concerned if Congress does not support funding for the IMF or restricts the ability of the Clinton Administration to provide bilateral loans from the Emergency Stabilization Fund. Such concerns would likely lead to questions regarding the credibility of U.S. security commitments.

Implications for U.S. Influence vis-a-vis Japan

For a time after the initial collapse of the Southeast Asian currencies, it appeared that Japan would move aggressively to fill a void that had been created by a generally passive response to the crisis by the Clinton Administration. Unlike the case of Mexico's debt crisis, the United States Government initially declined to take the lead in organizing a rescue of Thailand, and only committed funds to assist South Korea and Indonesia when the crisis spread and deepened.

In contrast with the relatively small commitment of U. S. funds, Japan deployed substantial resources in support of the beleaguered economies. Tokyo's commitments and contributions have included $ 4 billion for Thailand, $ 5 billion for Indonesia, a $10 billion commitment to the IMF-led $57 billion package for South Korea, contingent on the deployment first of loans from the IMF and other international financial institutions, and a $1.3 billion "bridge" loan to Seoul pending the receipt of the IMF funds.46

Japan also initiated a short-lived bid to play the role of a regional financial leader. In September 1997, at an IMF meeting in Hong Kong, Japan's Finance Minister proposed a $100 billion Asian Monetary Fund to stabilize Asian currencies. The plan was widely thought to be the brainchild of a senior official of the Ministry of Finance, who is well-known for touting the virtues of Japan's bureaucratic-led economic model and criticizing the western, market-centered economic orthodoxy promoted by the IMF and the World Bank. The Japanese never spelled out the exact contents of the plan, but the goal appeared to be to provide an alternative to the IMF's intrusive fiscal austerity and structural reform conditionality. Despite backing by Malaysia, however, the idea failed to gain support at a meeting of APEC deputy finance ministers in Manila in late November 1997, although the officials agreed to a U. S.-backed compromise involving the establishment of a supplementary "second- line" Asian fund, based on voluntary commitments from Asia-Pacific economies, for deployment should the IMF's resources prove inadequate. Both the United States and the IMF itself had lobbied hard against the AMF proposal, on grounds that a lack of conditionality would remove the necessary incentives for reform and create a "moral hazard" problem -- i.e., the continued provision of risky loans under the assumption that defaults would be made good by taxpayer funds from unaffected countries. 47

Japan's opportunity to expand its regional influence was further undercut by the decision of the Clinton Administration in the fall of 1997 to take a more direct role in addressing the crisis. After standing in the wings while Thailand' s first devaluation played out, the Clinton Administration in late October committed $3 billion in "second-line" support for a $37 billion rescue plan for Indonesia, and played a leading role at a meeting in Manila of Asia-Pacific finance ministers. In December, and once it was satisfied that South Korea would adopt the necessary financial and structural reforms, the Administration committed $5 billion to support South Korea, and agreed to accelerate the delivery of funds. In late December the U. S. Treasury Department also played a key role in getting U. S., European, and Japanese banks to agree to roll over some $15 billion in short-term loans to South Korea.

In sum, after assuring itself that the affected countries were willing to adopt the IMF's required reforms, and after verifying the need for more funds than those available to the IMF from its own resources, the United States emerged as still the most influential power and the only one with the ability to assert clear leadership. As one analyst noted, "For all the complaints about Washington' s bullying Asia, the U. S. is Asia's largest export market and the key to maintaining regional peace." Rather than taking the lead from the United States, Japan's bid to promote an Asian Monetary Fund simply served as a catalyst to get the United States engaged. When the United States weighed in, it was the single most important influence on IMF policy.48

Japan has been handicapped in its effort to play a regional leadership role by its own financial system headaches and sluggish economy, and the fact that Tokyo would not or could not do what the Asians most desired-stimulate its own economy and open up its markets further to its neighbors' exports. Prime Minister Hashimoto of Japan reportedly informed Malaysia's Prime Minister Mahathir and other Asian leaders in mid-December that Tokyo lacked the ability to lead the region out of its problems unilaterally, and that without a central role for the IMF neither the IMF nor other countries would offer the necessary aid 49 At a first-ever summit of 12 regional leaders in Malaysia, Hashimoto explained that Japan could not expand its imports of Asian goods because of its own economic problems.50 Japanese aid, while impressive, fails by a large measure to compensate for the increase in the effective debt burden caused by the fall in the Asian currencies, and its efforts have been widely viewed as largely aimed at protecting the interests of Japanese banks. At the same time, the United States is widely viewed as a key force in the economic globalization phenomenon because of its long-standing efforts to lower barriers to trade, investment, and capital flows. Because many in Asia see the current situation as largely having been brought on by too much liberalization, too fast, the U. S. role in leading the region out of the crisis is likely to be more critically evaluated.

Determining Factors

The ultimate implications for U.S. regional and foreign policy interests may depend on two broad considerations. The first is the duration and severity of the crisis. . The second is the perception of Asian countries of the U. S. role.

Duration and Severity of the Crisis

Several factors may influence the duration and severity of the crisis. All but one of them are substantially outside American control, but several are susceptible to U.S. influence.

The Responsiveness of Affected Asian Governments to the Need for Structural Reform and Greater Financial System Transparency. It goes almost without saying that a longer term solution to the region's problems can only be found if the affected governments carry out reforms that will eliminate the practices that contributed to the crisis in the first place. This will require an enormous amount of political will and nerve, since some reforms such as better accountability and transparency in the financial system inevitably will further dry up credit and cause additional bankruptcies. More basic structural reforms, such as reducing the role of bureaucratic and political influence in the allocation of credit, and reducing formal and informal trade barriers, will inevitably damage powerful vested interests. President Suharto and his family members and other close political allies have fought a rear-guard action against the IMF' s conditionality, since the reforms jeopardize the basis of their power. The South Korean government is likely to have a difficult time breaking the chaebol of their special privileges, since they play such a large role in the domestic economy and in exports.

Japan's Success in Addressing its Economic Problems. Perhaps the single most important substantive determinant will be Japan' s success in dealing with its bad loan problem and attendant credit crunch, and finding a way to regain a growth path. On an exchange rate basis, Japanese GNP has constituted about 75 percent of the East Asia region's total output in recent years. Thus a comparatively modest increase in Japan's growth rate could substantially raise its imports of Asian goods and thereby help its neighbors to revitalize their shattered economies.

The Hashimoto government has taken a number of limited steps to revitalize the Japanese economy and address the country's massive bad debt problem. These include a partial reversal of what many have criticized as an overly restrictive fiscal policy, a proposed $15 billion (at current exchange rates) tax cut, and a proposed $77 billion bond issue for the Deposit Insurance Corporation, to shore up the banking system, and up to another $ 150 billion to buy the preferred stock of troubled banks. In general, however, these measures have been deemed inadequate by most Japanese and western analysts. Skepticism abounds, also, regarding the government's plan for a "big bang" financial sector deregulation and other administrative reform and deregulation initiatives.

By most accounts the Ministry of Finance remains wedded to failed policies and Prime Minister Hashimoto's Liberal Democratic Party government, with a razor-thin majority and severe internal rivalries and policy divisions, has seemed unable to take any initiatives that involve significant political risks. "The problem, wrote Gillian Tett of the Financial Times, " is that nobody in Japan is in a position to push through the overarching and coordinated change needed.'' 51

For most of the postwar era, Japanese leaders have relied on gaiatsu-foreign pressure-to help them overcome the opposition of vested interests to measures designed to harmonize trade and economic relations with the outside world. During the first three years of the Clinton Administration, U. S. officials replaced gaiatsu, with its patron-client overtones, with a more confrontational posture, including demands for the negotiation of "results-oriented" trade agreements. The Clinton Administration largely abandoned that approach after the conclusion of a compromise autos and auto parts agreement in mid-1995. Since then U.S. officials have been highly restrained, at least in public, in prodding Japan to stimulate its economy and reduce its reliance on exports to bolster the economy. The Administration appears neither to have sought to cultivate allies within the Japanese system nor put public pressure on the Hashimoto government to adopt policies favored by the United States. The reasons for this reticence are unclear, but may be partly related to the goal of expanding U. S.-Japan security cooperation

As of mid-January 1998, the Administration appeared to be taking a stronger line, and doing so with the full backing of the Japanese government. Senior officials from the Treasury, Defense, and State departments stopped in Tokyo after a round of visits to Southeast Asian capitals, reportedly with the mission of stiffening the spine of the Hashimoto administration. In keeping with the gaiatsu tradition, the U.S. pressure for greater efforts to revive the Japanese economy reportedly was welcomed by some Japanese bureaucrats. A senior finance ministry bureaucrat said that "Japan is, in a way, waiting for the U. S . to come [and apply] some pressure." According to the official, "In order to get the understanding of the Japanese public, the Japanese government also has to have the U. S. in the scheme."52

Whether the Crisis Spreads to China. Thus far China has been insulated from the crisis, even though its 1994 devaluation was one of the contributing causes of the problems of the Southeast Asian countries. China contributed $1 billion towards the IMF package for Thailand, and its leaders have declared that China would not carry out a further currency devaluation. Despite these favorable policy decisions, analysts worry that some 20 percent or more of China's own bank loans are non-performing and that Beijing faces a gargantuan problem in seeking to stem the losses of its inefficient state owned industries (SOEs.)

To date, China has avoided trying to match the declines in the currencies of its Asian competitors, but growth has already slowed to 8 percent from its usual double- digit figures and unrest reportedly is rising along with unemployment. 53 The more the other Asian currencies plunge, however, the stronger will be the pressures on Beijing's economic managers to devalue so as to protect China's export markets and the stability of the regime. China could also be forced to devalue its currency if Hong Kong cannot continue to maintain its peg against the U. S. dollar.

The Effectiveness of U.S. Leadership. The effectiveness of U.S. leadership could affect the extent of possible damage to the U. S. economy and the global trading system, especially in regard to rising political instability and a growing loss of confidence among the populations of Asian countries. Not only does the United States have the largest and most robust economy, and the largest and most open market, but the crisis has also demonstrated that only the United States has the institutional mechanisms for coordinated crisis management and the will to lead. It is almost inconceivable that the IMF or any collection of Asian countries could adopt policies that were not supported by the United States.

Notwithstanding its prominent role, some have characterized U.S. leadership as of mid-January 1998 as being generally more tactical and technical, and more focused on the financial aspects of the crisis that are the principal concerns of U. S. banks and the IMF, than with the larger foreign policy implications. U.S. intervention, appropriately enough, has been led by the Treasury Department. Despite the considerable foreign policy implications of the crisis, however, senior State Department officials and other members of the U. S. foreign policy apparatus have been largely silent. Some change in this situation was indicated by President Clinton's personal phone call to Indonesian President Suharto on January 8. Secretary of Defense William Cohen also made a high visibility trip to the region in mid-January 1998, during which he offered reassurances about the U. S. commitment to maintain its security role in the region. In general, however, the Administration did relatively little until January 1998 to indicate a broader view of the potential political fallout.

In that sense, some critics still see the United States as sidelined. Robert Zoellick, a former Undersecretary of State for Economic and Agricultural Affairs and White House Deputy Chief of Staff under the Bush Administration, charged in a January 6, 1998, Op Ed, that "the Clinton Administration's response to the turmoil in East Asia has been to rely solely on the Treasury's transactions skills for crisis management." He also took President Clinton to task for remaining "strangely silent about the larger implications of recent events" despite his past emphasis on "foreign policy as geoeconomics," and criticized Secretary of State Albright of allegedly "taking a leave of absence from the course on Asian political economy," despite her previous expressed desire to educate the public on the importance of foreign policy.54

As if in response to the Zoellick critique, a "senior State Department official" subsequently told a Washington Post journalist that the Department was well aware of the "major geopolitical ramifications" of the crisis, but had made no effort to seek less stringent IMF conditionality "out of fear of the political consequences." Rather, the official said that the State Department agreed with the Treasury Department and the White House that "the shortest way to a potential solution is to take the IMF medicine." 55 Federal Reserve Chairman Alan Greenspan adopted a similar position in an address to the Economic Club of New York in early December, 1997 56

In mid-January the Administration steadily broadened the involvement of senior officials in addressing the crisis, including high level delegations to Asian capitals involving the Secretary of Defense, the Deputy Treasury Secretary, and the Assistant Secretary of State for East Asia. The President made several calls to Indonesia's President Suharto and other regional leaders, and made a strong plea for congressional support of the IMF funding request in his State of the Union address.

Perceptions of the U.S. Role

Longer term U. S. interests may also be affected by the perception of the U. S. role, not just its effectiveness. While Japan is in some respect the "headquarters" economy for Asia, the United States is still the center of the global economy and the single most influential member of the IMF. In that sense, whether the United States responds with strong leadership or a more narrowly defined defense of its economic interests, may have a significant impact on whether the affected countries treat their current difficulties as a "hiccup" on the road to mutually beneficial global economic integration, or as victims of fickle western capitalists and financial speculators.

One possibility is that Asian allies and friends will regard the United States as having let them down in their hour of need. Most well informed Asians understand the degree to which their own leaders and institutions contributed to the crisis, but it is only natural that they look elsewhere for complicity, especially when the IMF, the World Bank, and western financial analysts had so recently praised the same countries for their strong economic fundamentals and prudent macroeconomic management. In this respect, they tend to have unrealistic expectations that the United States, as the leading capitalist country and the strongest advocate of the financial sector liberalization who some how share their pain.57 To the extent that U. S. policy is seen as self-centered, the Asian reaction may negatively affect a number of U.S. interests, including military alliance and access relationships.

Implications and Options for Congress

Exactly how the United States should respond to the Asian financial and economic crisis appears likely to be a divisive issue for Congress, given that the American role could involve the commitment of a significant level of taxpayer funds in pursuit of policies whose very premises are subject to strongly differing points of view. As the world's largest economy, the center for global finance, and the most influential country in the International Monetary Fund, the United States cannot avoid expectations that it will assume the mantle of leadership. The extent to which the United States should shoulder the main burden of leadership, the direction in which it should lead, and the exact policy prescriptions that it should support, are likely to be matters of intense congressional debate.

The debate may be all the more heated because the issues are not reducible to provable outcomes. Economics may no longer be the "dismal science" as it was called when the discipline developed in the mid- 1 8th century, but economic analysis continues to be more art than science. The basic laws of the market are real and undeniable, but modern economies involve a highly complex interaction of objective factors, cultural influences, and human psychology. The resultant equation is too complex to be "solved" with any degree of certainty. As a result, the policymakers and economists themselves tend to make decisions that are strongly colored by their philosophical and ideological beliefs.

In addition, because their growth has been predicated on access to foreign capital, the Asian countries face a kind of Hobson's choice between economic policies that reassure the financial markets and policies that might produce better results in the domestic economy and create less stress on social stability. In a real sense, the arguments over the IMF's conditionality cannot be reconciled because the very premises of the Fund's critics and supporters are different. One side is concerned with creating the right response in the financial markets. The other is more concerned with the impact of the IMF's reforms on the domestic economies and political stability of the affected countries.

For reasons that have both similarities and differences, some critics on both the left and the right share a seemingly visceral opposition to the IMF. Critics on the left of the spectrum see the IMF as an agent of the American brand of free-market capitalism and an opponent of state-centered economic development models. Robert Kuttner, co-editor of the American Prospect, charges that the IMF "is now the premier instrument of deflation as well as the most powerful unaccountable institution in the world," and one that is "a surrogate for American power."58 Critics on the right, including libertarians, also view of the IMF as an organization with excessive controlling authority, but one whose policies are hostile to free market capitalism, supportive of socialistic nostrums, and antithetical to American sovereignty.59

Two Part Problem

One way to reconcile the conflicting views about the role of the IMF is to separate the issue into two parts. The first part has to do with the more immediate problem of the stability of the international financial system and the liquidity crisis brought on by a lack of confidence on the part of international lenders in the security of their loans. The second part has to do with medium and longer term issues regarding the "medicine" prescribed by the IMF, and other policies aimed at reinvigorating the Asian economies.

Stabilizing Currencies and Restoring Liquidity

The short term efforts by the IMF have been aimed at injecting enough international liquidity into these economies to halt the downward spiral of regional currencies and avoid a default on international loans that would cause a wider economic crisis. Containment of the crisis has been the main rationale for the Administration' s support of the IMF and its unilateral engagement with the affected countries.60 This approach is premised on the view, as financier George Soros argued recently in the Atlantic Monthly, that real world international financial markets are inherently volatile and unstable since "market participants are trying to discount a future that is itself shaped by market expectations." 61 Treasury Secretary Rubin echoed this view in a Georgetown University speech on January 21, when he warned that global markets would not be able to stabilize in Asia on their own, and that a strong role on the part of the IMF and other international institutions, and governments, was necessary lest the crisis spread to other emerging markets in Latin America and Eastern Europe.62

Many analysts judge that default on loans by the troubled Asian countries, especially South Korea, could trigger a chain reaction of financial sector bankruptcies elsewhere in Asia, further currency devaluations, the collapse of stock prices in major countries, and a significant breakdown of international trade, possibly resulting in a global depression. For example, widespread defaults by Asian borrowers could cause Japanese banks, which are heavily exposed in the region and already on the edge of insolvency, either to fail or to severely cut back loans both to problem customers and viable companies. A sharp retrenchment of the world's second largest economy could set in motion a worst-case chain of events. While unlikely, such a scenario is not outside the realm of possibility.

As of early January 1998, actual transfers of funds from the IMF, the World Bank, the Asian Development Bank, and the leading industrial countries, including the United States, Japan, and several European countries, have amounted to comparatively small sums-less than one fifth of the $100 billion or so committed in the IMF led rescue packages. The funds have been disbursed in tranches to make sure that the program countries adhere to their conditionality commitments. However, the slow disbursal has led some Indonesian critics to charge that the IMF' s requirement that the program countries run a budget surplus suggests that the bailout funds are an "abstract inducement," and that "the supposition arises that maybe the 43 billion dollars was indeed planned not to be used."63 While the funds disbursed to date are hardly abstract, the charge underscores the limits of the IMF's role. The infusion of funds at least temporarily staved off the default on billions of dollars worth of short-term loans, and, even more important, persuaded the lending commercial banks to roll over their loans to South Korea, but without actually bailing out either the borrowers or the lenders.

It remains to be seen whether the IMF's rescue efforts can stem the current deflationary slide and restore investor confidence in the Asian economies, but its stabilization packages are an accomplished fact. As of mid-January 1998, the packages for Thailand and South Korea, appeared to have stopped the free fall of currency and stock values, though both remain volatile and greatly depressed from pre-crisis levels. In Indonesia, on the other hand, the situation has continued to deteriorate. It also remains to be seen whether the Suharto government's reaffirmation of its commitment to the IMF program will restore local and foreign investor confidence.

Issues Concerning the Specifics of the IMF Rescue Programs. Apart from the desirability of avoiding a wider financial collapse and minimizing other destabilizing effects of the crisis, the case for intervention rests primarily on the benefits of linking rescue packages to reforms that are intended to address the causes of the problem and lay the ground for a revival of growth. These reforms fall into several categories, however, and some of them are controversial.

Among economists, financial analysts, and other commentators, the least controversial IMF conditions have been its demands for reforms in the banking systems of affected countries. Most support the need for greater regulation of banking practices, stronger capital requirements, the closing of unviable banks and the recapitalization of viable ones. Some IMF critics, however, argue that in the absence of depositor insurance in the affected economies, closing banks has created a wider panic.

One basic criticism of banking practices in the region is that the past liberalization of controls on foreign borrowing, which the United States supported, was not accompanied by adequate improvements of regulation and supervision of the banking systems. Additionally, the allocation of credit in many affected Asian countries was strongly influenced by bureaucratic "guidance" and political intervention. In South Korea, for instance, these practices allowed the chaebol to operate on extraordinary levels of debt and to make business decisions on the basis of prestige and the desire to expand market share, wholly in disregard of sound business practice.

Few in U. S. business and labor circles, or in Congress, object to insistence by the IMF that Asian countries open up their economies to foreign goods and investment, dismantle domestic monopolies, and privatize state owned industries, though these conditions are strongly resisted by the Asian governments. These goals are in line with long-standing and broadly supported U.S. policy objectives. Their rationale is that these measures are necessary to eliminate the misallocation of resources and make the industries of the affected economies more competitive.

The IMF's structural reforms are mainly criticized by economists and political analysts who still find much to admire in the state-led industrialization policies of the East Asian countries, and some who worry that however meritorious they will create political instability. Based in particular on studies of the economic takeoffs of South Korea and Taiwan, a number of scholars have concluded that the coupling of free market principles with judicious bureaucratic direction was the key to the "Asian miracle."64 Accepting the need to overhaul this system, pioneered by Japan, therefore would also require reevaluating what currently is the most influential perspective in international political economy theory. Some analysts can be expected to argue that the recent policy failures and regulatory lapses on the part of Asian governments do not justify throwing the baby out with the bath water, and that the international financial community bears as much responsibility for the crisis as the Asian governments and companies. Some IMF critics, such as Robert Kuttner, argue that the IMF and the United States have long resented the success of the Japanese and South Korean models of state-led development, and are now hypocritically punishing South Korea for what in reality was its acceptance of"too much market liberalization too soon."65

More controversial are IMF requirements that the recipients of assistance undertake macroeconomic policy changes involving fiscal and monetary belt- tightening, even in the face of slumping output and rising unemployment. The IMF's agreements with both Thailand and Indonesia involve commitments to achieve budget balance or a small surplus, in the case of South Korea, a surplus amounting to one percent of GNP in the cases of Indonesia, and one-half to one percent in Thailand. These goals are to be achieved through a reduction of expenditures, especially state sector infrastructure projects and subsidies in Indonesia and Thailand, and a variety of tax increases.

The IMF's general approach enjoys the support of many economists and financial analysts who give priority to restoring the confidence of foreign lenders and investors, recapitalizing the banking systems, and stopping domestic capital flight, but they find opposition from those at either end of the ideological spectrum who alternatively give priority to social stability and equity or to the free play of market forces. Some would increase government spending to bolster incomes and employment, and provide a social safety net, while others would like to see the governments cut taxes to stimulate the economy.

Harvard's Jeffrey D. Sachs, argued in early November that "The region does not need wanton budget cutting, credit tightening, and emergency bank closures. It needs stable or even slightly expansionary monetary and fiscal policies to counterbalance the decline in foreign loans." 66 In early January Sachs denounced the IMF's efforts, asserting that it had "turned a dangerous situation into a calamitous situation, by very publicly and ostentatiously closing banks, raising interest rates, tightening credit, and signaling to anyone who didn't see it before that these economies would go into free fall."67 A similar criticism, but perhaps based on different premises, has been made by former presidential aspirant Jack Kemp, who reportedly has argued that the austerity programs championed by the IMF and the World Bank are harmful to the growth prospects of the struggling nations, and will threaten U. S. jobs with a flood of bargain-priced manufactured goods.68

Others warn against the "moral hazard" of bailouts. The latter group, including former Federal Reserve Governor Lawrence Lindsey, currently a fellow at the American Enterprise Institute, warn against the long term dangers of a second "bailout" (after Mexico) of creditors who made risky loans and now are suffering the consequences.69 The argument against intervention rests primarily on faith in the self- correcting nature of the markets and disagreements with the premises of the IMF's remedies. Some also may believe that the situation is so serious that any intervention will amount to throwing good money after bad, and that events should be allowed to take their course.

The IMF and its supporters argue that the criticisms of its role are flawed for several reasons. First, it is asserted, the IMF's program isn't a "one size fits all" replica of the Mexico bailout. Rather, each country's conditionality has been tailored to its specific situation, and largely based on the countries' own statements of their longer term goals. Second, IMF officials acknowledge that the conditionality

requirements, which they concede were hastily formulated, are subject to modification as the situation warrants. Third, while it is acknowledged that requiring countries to run a fiscal surplus and close unsound banks may cause economic contraction, IMF officials and others argue that these measures are necessary to recapitalize the banking systems and restore lender confidence. Practically speaking, the IMF lacks both the resources and the desire to substitute for the current international lenders. Consequently, it is argued, no recovery is possible without a restoration of the confidence the of international banks and investors.

To date, critics of the IMF's macroeconomic conditionality have made their case in terms of principles of counter-cyclical fiscal policy. They have not offered specifics as to what kinds of projects and programs should be the recipients of sustained or increased government spending. At the microeconomic level, advocates of an expansionary macroeconomic policy would be hard pressed to defend plowing more government funds into infrastructure projects that are economically unsound, to perpetuate the monopolies of"crony capitalists," or as in the case of Indonesia, continuing to subsidize the prices of gasoline and other basic commodities. On the other hand, all of the affected Southeast Asian economies suffer from serious infrastructure bottlenecks. The question, therefore, is which projects are meritorious and essential for longer term growth, and which involve the misallocation of scarce resources on the basis of political favoritism.

Moreover, economic pump-priming may not work well in an atmosphere of little confidence and a glut of unmarketable property and excess manufacturing capacity in major sectors-electronics, computer chips, and automobiles-that cannot be cleared from the market except at fire sale prices. Japan has tried-albeit not hard enough in the eyes of domestic and foreign critics- to grow its way out of the collapse of asset values that began in 1990, without success. Many analysts judge that this cannot be accomplished without purging the economy of bad debt. In any event, while it may be true that the IMF's remedies may tend to raise interest rates and promote a further economic contraction in the short term, it is not necessarily the case that injecting capital into unsound banks and adopting stimulative fiscal policies would succeed in raising growth, given the loss of confidence among foreign and domestic investors, and the magnitude of the collapse of asset values. In the same vein, some have also argued that there is nothing intrinsically wrong with the IMF' s programs but that the size of the available stabilization fund is insufficient to cope with the magnitude of the problem.

Issues Concerning U.S. Foreign Policy Interests. Concerns about other U. S. interests, such as regional stability, also argue in favor of supporting the IMF's intervention, even if not every element of the IMF's programs with individual countries. Reportedly, the U.S. Defense Department has worried that South Korea's economic woes may prompt North Korea to seek to take advantage of the situation in some way. A North Korean attack seems improbable, given that country's own more serious economic prostration. Moreover, the Pyongyang regime recently has behaved less rather than more recalcitrant. On the other hand, until the South Korean economy recovers, Seoul would be in a weak position to respond to a North Korean political and economic collapse, should that occur.

The identification of the United States with the IMF's conditionality also brings with it some foreign policy costs in terms of rising anti-Americanism among some in the affected countries. In the main, with the likely exception of Indonesia, the governments themselves appear to welcome the decision of the (Clinton Administration to play a more active role in support of the IMF, but the austerity measures have engendered significant opposition among the populace in the affected countries. Practically speaking, because the IMF's approach has been long associated with U. S. influence, the United States is unlikely to escape criticism and resentment regardless of what specific role it plays in the crisis.

Legislative and Other Congressional Options

Congress will address the Asian financial crisis in one or more legislative vehicles. At a minimum, the Clinton Administration will ask that Congress include in a FY1998 supplemental appropriation a pending request of $3.5 billion for the U. S. share of the IMF's proposed New Arrangements to Borrow (NAB.) This facility, proposed well before the Asian problems emerged, would consist of medium-term credit lines that the IMF could draw against to assist countries affected by sudden flows of short-term capital and portfolio investment. The credit line would approximate about $46.6 billion if fully funded by 25 prospective contributors, and would supplant the existing IMF facility, the General Arrangements to Borrow(GAB), as the first and principal recourse. The U.S. share would be 19.7 percent, a reduction from the 25 percent share of the U. S. in the main existing IMF fund, the GAB. The reduction in the U. S. share was made possible by an extension of participation beyond the 12 countries in the GAB. This share would go up slightly if the affected countries.

The $3.521 billion contribution had been included in the Senate version of H.R. 2159, the Foreign Operations, Export Financing, and Related Appropriations Bill, 1998, and had been widely expected to be included in the conference report. At the last minute, however, the conference leadership dropped this provision, along with funding for UN arrears and the reorganization of the foreign policy agencies, as part of an effort to resolve an impasse over a House amendment outlawing U.S. contributions to overseas family planning agencies and NGOs that counseled, promoted, or carried out abortions. The Administration had threatened to veto any bill containing the abortion provision.70

When these provisions were pulled from the bill the congressional leadership indicated that the IMF request might be taken up as part of a FY1998 supplemental appropriation. If the funds for the IMF are requested in the supplemental, as is expected, anti-abortion lawmakers say they will again link the issues, since no viable formula for compromising on the abortion issue has yet emerged.

Although some have described the request as a bailout financed by U.S. taxpayers, the appropriation, had it been approved, would have been scored as new budget authority, but not as an outlay or an increase in the budget deficit. Under a long-standing practice, contributions to the IMF are treated as an exchange of assets since the U.S. receives IMF-issued Special Drawing Rights (SDRs) in return for dollars. These return interest to the U. S. Treasury when they are deployed by the IMF. An actual outlay would only be required in the event of a default by a borrowing country, something that has never happened.

The Clinton Administration also had agreed earlier to contribute about $14.5 billion to a recently negotiated IMF quota increase, and was expected to request the funds in the FY1999 budget. Reportedly, the Administration has decided to seek these funds in the same FY1998 supplemental appropriations request.

Increases in the IMF quota of the U.S. have in the past occasioned wide ranging reviews of the IMF by Congress. Members of Congress thus far have given very mixed signals as to how the funding request for the IMF will be received. Those Members supporting the request emphasize the need to stabilize the situation and to prevent a continued downward spiral of currency values, arguing that the further the Asian currencies fall, the greater the effect on the U. S. trade deficit and on U. S. jobs. Opponents of the funding request tend to emphasize the "bailout" aspect of the issue, or their disagreement with the conditionality imposed by the IMF for its assistance.

The ideological and economic policy aspects of the debate are not susceptible to being resolved one way or the other, except through actual results. A rejection by Congress of the request for the IMF would undoubtedly generate a negative reaction in Asia. The United States is already resented for what is seen as exercising undue influence over the international economic system, but this negative perception is balanced by a realistic appreciation of the importance of the American economy and U.S. leadership to the well-being of the region. If the United States is associated with the IMF's conditionality without being perceived as shouldering a proportionate financial burden, resentment of U. S. "dominance" will likely grow.

Fast Track Trade Authority Request. The Asian financial crisis could also have an impact on how Congress deals with the Administration's request for fast track trade negotiating authority. Some Members may see the Asian devaluations as posing a new threat to American jobs, given the expectation of a surge in next year's trade deficit. Others, however, have called for U. S. leadership to pro-actively organize a consensus among the APEC countries to shun competitive currency devaluations, put pressure on Japan to stimulate its economy and forcefully clean up its bad debt problem, and work closely with China to address its burden of bad debt and make the necessary policy changes to entitle it to membership in the World Trade Organization. Robert Zoellick argues that the Administration will not have sufficient credibility to promote an Asia-wide restructuring without fast track trade negotiating authority.71

Other Options for Congress. Although Congress cannot directly influence IMF policy, it has some ability to do so indirectly through its interaction with the Administration and its oversight of U. S. policy. By many accounts, the U. S. Treasury Department has been a major behind-the-scenes force in shaping the current IMF programs, especially in South Korea and Indonesia. To the extent that Congress helps shape the Administration's policy, it may have influence over the IMF's programs as well.

Congress has a variety Of means to influence policy, starting with oversight hearings that would require the Administration to explain and defend its policy, and take statements from proponents of various approaches, including critics of the current IMF effort. Hearings on Japanese economic policy could not only provide a means of expressing congressional will regarding U. S. efforts to convince Japan to deal more effectively with its economic stagnation and debt problem, but can also be a means of putting public pressure on Japan directly, since such hearings would likely be well publicized in Japan. Many are concerned that the Asian countries may seek to improve their situations by flooding the U. S . market with cheap exports, especially since they have low expectations that Japan will greatly increase its Asian imports. Congress could also use hearings as a way of prodding the Administration to deal with any sharp increase in imports from Asia, and efforts of Asian countries to export their way back to prosperity. Through legislation, Congress can also direct the President to instruct the U. S. Executive Director to the Fund to support or oppose specific IMF loans or policies, or make appropriations for the IMF subject to an informal understanding with the Administration on the thrust and content of U.S. policy towards the crisis.


FOOTNOTES:

l For more detail on the causes of the crisis see CRS Report 97-1021, The 1997 Asian Financial Crisis. Nov. 25, 1997, p. 5-19 [by Dick K. Nanto and Patricia A. Wertman.]

2 Estimate by Brookings Institution Fellow, Nicholas R. Lardy.

3 James A. Kelly, East Asia's Rolling Crises: Worries for the Year of the Tiger. Center for Strategic and International Studies (CSIS) Pacific Forum, PacNet #1, Jan. 2, 1998.

4 Testimony before the House Banking and Financial Services Committee, Nov. 13, 1997.

5 See R. Taggart Murphy, Making Sense of Japan: A Reassessment of Revisionism. National Interest, Spring 1996: 50-63.

6 Ron Chernow, Grim Reckoning in Japan-and Beyond. Op Ed, New York Times, Nov. 17, 1997: A29.

7 Thornas F. Cargill, Michael M. Hutchinson, and Takatoshi Ito, The Political Economy of Japanese Monetary Policy. Cambridge, Mass: MIT Press, 1997. P. 113.

8 Martin Feldstein, Japan's Folly Drags Asia Down. 6 Wallstreet (online service), Nov. 26, 1997.

9 Unlike the Thai baht and other Southeast Asian currencies, China's currency, known both as the renminbi and the yuan, is not readily convertible and its value against the dollar is set by the government. As such, its "peg" doesn't have to be defended through buy and sell actions by the central bank. At present, China earns ample hard currency for its needs as a result of a trade surplus and large inflows of foreign investment.

10 For additional background, see CRS Report 98-13 E, South Korea's Economy and 1997 Financial Crisis. Dec. 29, 1997 [by Dick K Nanto.]

11 Paul Blustein, South Korean Bailout Faces Growing Criticism. Washington Post, Dec. 13, 1997: A17.

12 Steve Mufson, South Korea Takes Three More Punches. Washington Post, Dec. 23, 1997: C1, C2.

13 Paul Blustein, $10 Billion in Loans Rushed to S. Korea. Washington Post, Dec. 25, 1997: A1, A32.

14 Sandra Sugawara, Japan's Lawmakers Get Stabilization, Tax Cut Proposals. Washington Post, Jan. 13, 1998: D1, D2. Reportedly, the Ministry of Finance found it necessary to release more realistic figures to persuade the Diet (parliament) to go along with an unpopular plan to use public funds to bolster the banking system.

15 Eric Altback, The Asian Monetary Fund Proposal: A Case Study in Japanese Regional Leadership. Japan Economic Institute (JEI) Report, No. 47A, Dec. 19, 1997. P. 5; Appendix Table 3.

16 Clay Chandler, Japan Postpones Banking Reforms. Washington Post, Dec. 23, 1997: C 1, C3. For background, see CRS Report 97-594 E, Japanese Bank Ownership of Corporate Equities [by Dick K. Nanto.]

17 Daniel Williams, Russia Faces Increased Money Woes. Washington Post, Nov. 28, 1997: A1, A46, David Hoffman, Yeltsin Blames Foreigners for Capital Flight. Washington Post, Nov. 29, 1997: A19.

18 G. Bruce Knecht, Asia Shudders at "Normal" Growth. Wall Street Journal, Dec. 5, 1997:A13.

19 See analysis along these lines in a survey article, The Next Battle, Far Eastern Economic Review (FEER), Nov. 20, 1997: 18-28.

20 S.Jayasankaran, Mild Medicine. FEER, Oct. 30, 1997: 61.

21 Chen May Yee, Malaysia Unveils More of Austerity Plan. Wall Street Journal, Dec. 9, 1997: Al9.

22 Seth Mydans, Indonesia Agrees to I.M.F.'s Tough Medicine. New York Times Jan. 16, 1998: A1, C4.

23 Keith B. Richburg, Currencies Plummet Across Southeast Asia. Washington Post, Dec. 13, 1997: A1, A16. Concern about President Suharto was based on his failure to attend a ceremony marking the 30* Anniversary of ASEAN.

24 Sander Thoenes, Health Matters for Suharto's Children. Financial Times, January 3/4, 1998:3.

25 Jay Solomon, Indonesian Budget Spurs Fall in Asian Currencies. AP-Dow Jones News Service, Jan. 1, 1998.

26 Indonesia Reaches IMF Pact to Speed Reforms. Wall Street Journal, Jan. 15, 1998: A15, A16.

27 Seth Mydans, Indonesia Agrees to I.M.F.'s Tough Medicine. New York Times, Jan. 16, 1998: A1, C4.

28 Raphael Pura and Richard Brosuk, Indonesian President Seeks Fresh Five-Year Term, Possibly with Habibie. Wall Street Journal, Jan. 21, 1998: A1, A17.

29 Paul Jacob, Habibie Gets Successor Role in Latest Shadow Play. Straits Times (Singapore), internet edition, Jan. 25, 1998.

30 Paul Blustein and Sandra Sugawara, Rescue Plan for Indonesia in Jeopardy. Washington Post, Jan. 7, 1998: A15.

31 Paul Blustein, U.S., IMF Assurances Not Quelling Doubts on Indonesia. Washington Post, Jan. 14, 1998: A14.

32 Thailand: Reaching for the Moon. The Economist, Sept. 20, 1997: 45-46.

33 Michael Vatikiotis, No Quick Fix. FEER, Nov. 13, 1997: 15-15.

34 Michael Vatikiotis and Khon Kaen, The Good Earth. FEER, Oct. 23, 1997: 20-21.

35 Nayan Chanda, Blown Away: 1997; the Year in Review. Far Eastern Economic Review, Dec. 25, 1997 & Jan. 1, 1998: 24.

36 For an argument along these lines, see Keith B. Richburg, Across Asia, Stirings of Democracy. Washington Post, Dec. 16, 1997: A1, A18. See Also Thomas L. Friedman, Thailand's New Song. New York Times Op Ed, Dec. 15, 1997: A29.

37 Michael Vatikiotis, High Hopes. FEER, Nov. 20, 1997: 24, 28.

38 USIS Washington File, Transcript: 12/10 Amb. Wolf Worldnet on Vancouver APEC Results. Dec. 11,1997.

39 IMF Approves SDR 15.5 Billion Stand-By Credit for Korea. IMF Press Release No. 97/55, Dec. 4, 1997.

40 IMF Approves Stand-By Credit for Indonesia. IMF Press Release No. 97/50, Nov. 5, 1997.

41 Major Dana R. Dillon, USAR, A Southeast Asia Scenario. Military Review, Sept. 1994: 56-60.

42 For further background, see CRS Report No. 97-356 F, The U.S.-North Korea Nuclear Accord of October 1994: Background, Status, and Requirements of U.S. Nonproliferation Law [by Richard P. Cronin and Zachary S. Davis.]

43 South Korea: U.S. Official Cohen to Bring 'Mixed Bag' of Gifts, Demands. Seoul, The Korea Times (Internet version) in English, 0719 GM, Jan. 19, 1998.

44 Charles Aldinger, U.S. Defense Secretary Sets 11-Day Asian Visit. Reuters, Jan. 6, 1998.

45 This view was expressed by one participant in a January 13, 1998, CRS workshop on Southeast Asian security issues.

46 Japan Digest, Dec. 4, 1997: 3; Jathon Sapsford, Japan Makes Big Bridge Loan to South Korea. Wall Street Journal, Dec. 19, 1997: A13.

47 Edward A. Gargan, Asian Nations Affirm I.M.F. as Primary Provider of Aid. New York Times, Nov. 20, 1997: D2.

48 Bob Davis and G. Pierre Goad, Asia Reaffirms U.S. Primacy on Bailouts. Wall Street Journal, Nov. 20, 1997: A16, A18.

49 Japan Digest, Dec. 15, 1997: 1.

50 James Kynge, Economic Clouds Darkened Summit Skies. Financial Times, Dec. 17, 1997:6.

51 Gillian Tett, Japan's Missed Opportunity. Financial Times, Dec. 22, 1997: 6.

52 James L. Tyson, U.S. to Lecture Tokyo on Helping Asia. Christian Science Monitor, Jan. 14, 1998: 1, 7.

53 Parnela Yatsko and Matt Forney, Demand Crunch: With Growth Sliding to a Danger Level, China Must Act Fast to Create Jobs and Stave Off Social Unrest FEER, Jan. 15, 1998: 44-47.

54 Robert B. Zoellick, A Larger Plan for Asia. Washington Post, Jan. 6, 1998: A13.

55 Thomas W. Lippman, U.S. Analyzing Potential Fallout from Asia Crisis. Washington Post, Jan. 13, 1998: A16.

56 Remarks, Federal News Service, Dec. 3, 1997.

57 A Thai businessman reportedly explained to a U.S. journalist "If only Clinton would say, 'Thailand and the U.S. are close friends. No matter what happens, we will help.' That's it. That would do it." Sandra Sugawara, Summers Assures Thailand U.S. Has a Stake in Reforms. Washington Post, Jan. 14, 1998: A15 .

58 Robert Kuttner, Bailout Blunder. Washington Post OpEd, Jan. 5, 1998: Al9.

59 See, for instance. Donald Lambro, GOP's Asian Bailout Skeptics. Washington Times, Dec. 29, 1998: A12.

60 Adam Entous, Rubin Defends Asian Bailouts, Seeks IMF Funding Boost. Reuters, Jan. 4, 1998.

61 George Soros, Toward A Global Open Society. Atlantic Monthly, Jan. 1998: 22.

62 Steven Pearlstein, Administration Urges New Bailout Funding. New York Times, Jan. 22, 1998: E1, E4.

63 Kwik Kian Gie, Why is the Rupiah Still Weak? Kompas Online (Jakarta), Jan. 19, 1998.

64 See, for instance, Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton: Princeton University Press, 1990, and Robert Wade, et al, Miracle or Design? Lessons from the East Asian Experience. Overseas Development Council, ODP Policy Essay No. 11, 1994.

65 Robert Kuttner, Bailout Blunder. Washington Post OpEd, Jan. 5, 1998: Al9.

66 Jeffrey D. Sachs, The Wrong Medicine for Asia. New York Times, Nov. 3, 1997: A27.

67 Paul Blustein and Sandra Sugawara, Asian Currencies Fall Again. Washington Post, Jan. 6, 1998: D2

68 Robert D. Novak, Befuddled by the Bailout. Washington Post, Dec. 29, 1997: A17.

69 Remarks cited in Paul Blustein, IMF Credibility Is on the Line in Asia Bailout. Washington Post, Dec. 22, 1997: A1, A20.

70 For background on this impasse, see CRS Report 97-211 F, Appropriations for FY1998: Foreign Operations, Export Financing, and Related Programs. Updated Dec. 11, 1997 [by Larry Nowels.]

71 Robert B. Zoellick, A Larger Plan for Asia. Washington Post, Op Ed, Jan. 6, 1998: A13.

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