The Wall Street Meltdown: the View from Asia

Sep 30

Many Asians absorb what is happening in Wall Street with a combination
of déjà vu, skepticism and "I-told-you-so." For many, the Wall Street
crisis is a replay, though on a much larger scale, of the 1997 Asian
financial crisis, which brought down the red-hot "tiger economies" of
the East. The shocking absence of Wall Street regulation brings back
awful memories of the elimination of capital controls by East Asian
governments, which were under pressure from the International Monetary
Fund and the US Treasury Department. That move triggered a tsunami of
speculative capital onto Asian markets that sharply receded after
sky-high land and stock prices came tumbling down.
Treasury Secretary Paulson's proposed massive bailout of Wall Street's
tarnished titans reminds people here of the billions the IMF hustled up
after '97 in the name of assisting them–money that was used instead to
rescue foreign investors.
So Asian governments and financial players are skeptical about
Washington's talk of re-regulating the financial sector, and, although
their central banks and sovereign wealth funds are flush with cash,
they're wary about being drawn into the Wall Street maelstrom. Among
East Asian official funds, only Singapore's Temasek and the China
Investment Corporation have stepped up to the plate. Temasek pumped
over $4 billion into Merrill Lynch a few months ago, but only after
driving a hard bargain. CIC invested $5 billion in Morgan Stanley last
December but refused the troubled investment bank's recent desperate
plea to increase its share of the firm. Initially seen as a potential
savior, the Korean Development Bank turned down the overtures of Lehman
Brothers a week before the latter's historic collapse into bankruptcy.
Trillions of dollars of Asian public and private money are invested in
US firms and property, with the five biggest Asian holders accounting
for over half of all foreign investment in US government debt
instruments. Funds from Asia have become a key prop of US government
spending and the middle-class consumption that have become the driver
of the American economy. With so much of Asia's wealth relying on the
stability of the US economy, there is not likely to be any precipitate
move to abandon Wall Street securities and US Treasury bills.
At home, however, there are growing worries, and consumer advocates,
NGOs and academics are demanding more transparency about how much the
local banking system is exposed to Wall Street's toxic assets. In the
Philippines , there are calls from civil society groups for the banning
of derivatives trading, the return of capital controls and the
renegotiation of the country' massive foreign debt now that the
international banks are in a weak position.
There is, moreover, resignation throughout Asia about the inevitability
of a deep US recession and its likely massive impact on the East: the
United States is China's top export destination, while China imports
raw materials and intermediate goods from Japan, Korea and Southeast
Asia to shape into the products it sends to the United States. Despite
some talk a few months ago about the possibility that the economic fate
of Asia could be "decoupled" from that of the United States, most
observers now see these economies as members of a chain gang shackled
to one another, at least in the short and medium term.
Greater regional integration is now seen widely as a healthy antidote
to a global integration that has run out of control. Some elements of
regional economic cooperation are now in place, notably the so-called
"ASEAN Plus Three" formation, which unites the Association of Southeast
Asian Nations with China , Korea and Japan in a mechanism to facilitate
bilateral exchanges of funds in the event of a financial crisis.
Eventually this arrangement could become a full-blown regional monetary
On the other hand, NGOs and social movements, while in theory
supportive of integration, distrust a process monopolized by governing
elites they view as unaccountable. Active participation of civil
society, they insist, must be central to the crafting of such regional

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