[Congressional Record Volume 144, Number 2 (Wednesday, January 28, 1998)]
[Extensions of Remarks]
[Page E31]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                       THE ASIAN ECONOMIC CRISIS


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                      Wednesday, January 28, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, January 28, 1998 into the Congressional Record:

                       The Asian Economic Crisis

       Over the last several months, the economic news has been 
     dominated by the crisis in East Asia--gyrations in stock 
     markets, widespread business and banking failures, and the 
     sharp decline of currencies throughout the region. Americans 
     are concerned when our stock market fluctuates in response; 
     they wonder about our role in responding to the crisis; and 
     they worry about the overall impact of the crisis on the U.S. 
       What is the crisis? The economic turmoil in East Asia is 
     largely a banking and investment crisis linked to a collapse 
     of investor confidence. Because East Asian economies are 
     closely tied together, a series of problems--starting with a 
     flawed exchange rate policy in Thailand this past summer--
     have quickly spilled over into neighboring countries. Five 
     countries have been hit the hardest--Thailand, Indonesia, 
     South Korea, and to a lesser extent, Malaysia and the 
     Philippines--but a total of thirteen countries have been 
     affected. Taken together, these economies comprise 
     approximately a third of the world economy. The sums of money 
     involved make this the largest economic crisis in recent 
     years, far larger than the Latin American debt crisis of the 
     1980s or the Mexican peso crisis in 1995.
       What caused it? For several years, Pacific Rim countries 
     were growing rapidly. A huge wave of investment poured into 
     these ``Asian tiger'' countries, but much of it was invested 
     unwisely. In a word, there was too much of everything: over-
     investment, over-lending, and over-building, in ill-conceived 
     real estate and industrial projects; over-saving, diverting 
     the buying power from people; and over-guidance, with too 
     many bureaucrats and government officials deciding which 
     companies receive loans and investment. The region's 
     successes obscured banking and financial systems rife with 
     mismanagement and corruption. People ignored warning signs in 
     the booming, rapidly changing economies, and overlooked the 
     lack of reliable information and financial system safeguards.
       How serious is the crisis? The Asian financial turmoil 
     represents a serious threat to global prosperity. We are 
     clearly at a critical moment for Asia. The outlook today is 
     better than it was a few weeks ago, with most markets showing 
     signs of recovery. Yet we should not be complacent. The 
     problem is that the loss of confidence can be highly 
     contagious. If, for example, Indonesia's economy collapses, 
     so could other nearby economies, and that could take down 
     markets across the world. In addition, although the crisis 
     has not spread to China, it faces some of the same problems 
     as its neighbors. So clearly the main concern is that the 
     crisis not worsen and spread.
       What is the impact on the U.S.? Most experts believe that 
     the current turmoil will have a modest but meaningful impact 
     on the U.S. Our economy is fundamentally strong and should be 
     able to weather the current crisis. Moreover, as a result of 
     our own financial crises in 1929 and in the 1980s, 
     protections have been put in place to prevent most of the 
     problems the East Asian economies are experiencing.
       On the negative side, the U.S. will likely see its trade 
     deficit grow as changes in exchange rates make imports 
     cheaper and our exports more expensive. Some U.S. companies 
     could see lower profits and some job loss, and wages could be 
     held down. The experts think that U.S. economic growth for 
     1998 could be cut by up to a point, to around 2%. On the 
     positive side, cheaper imports mean lower prices for 
     consumers and should help keep down inflation in the U.S. In 
     addition, our interest rates are falling, as investors 
     worried about East Asia shift their funds to the U.S. That 
     means, for example, lower home mortgage rates for Americans.
       A greater fear is that the problems may undermine the 
     political stability of the region and affect U.S. security 
     interests. South Korea and Indonesia, for example, play an 
     enormously important role in maintaining regional stability. 
     Some governments in the region have fallen, and others could 
     fall. In addition, there could be resentment against the 
     United States because of its role in proposing tough 
     solutions for the area's economies.
       What steps are being taken to deal with the crisis? The 
     greatest challenge now facing these economies is to restore 
     investor confidence and financial market credibility. Several 
     steps are needed.
       First, because the crisis basically involves lending from 
     private financial institutions around the world to private 
     banks and companies in the region, these private lenders are 
     being urged to renegotiate their loans to make it easier for 
     borrowers to repay. Second, all the bad debt that remains 
     hidden needs to be exposed so the full extent of what is 
     needed to fix the problem is known. There has to be more 
     transparency and better oversight of the financial systems of 
     developing countries. Third, the International Monetary Fund 
     (IMF) is extending emergency funds to beleaguered countries, 
     in exchange for assurances that they will make economic 
     reforms that will help ensure their ability to repay their 
     loans. The U.S. has pressed the IMF to seek tough reforms, 
     and the U.S. and other countries have agreed to provide 
     emergency assistance if IMF money proves inadequate. The IMF 
     is producing results in the region, but its role and 
     accountability are being challenged. Fourth, we need an 
     improved international financial mechanism in which both 
     borrowers and lenders, who may now be bailed out, will pay a 
     price and be subject to the consequences of their actions and 
     the disciplines of the market. Fifth, Japan clearly needs to 
     stimulate its economy. It has a special responsibility as the 
     dominant economic power in the region to boost its economy in 
     order to absorb more of the exports of its struggling 
     neighbors. Finally, President Clinton needs to speak to the 
     American people and to the world about the financial crisis. 
     He needs to explain why bailouts are needed, how a collapse 
     can harm our security, and how it can be contagious. His 
     economic strategy must be shown to advance his security 
     strategy and America's interests around the world.
       What is the region's long-term outlook? Correcting the 
     financial problems discovered in East Asia will take some 
     time, and many difficult steps lie ahead. But the long-term 
     outlook for the region is not bleak. Countries can still 
     build on the strengths that fueled the ``Asian tiger'' 
     economies in the first place, including a strong savings rate 
     and a well-educated and motivated workforce. In addition, the 
     crisis is driving Asian leaders to adopt market-oriented 
     reforms of the kind favored by the U.S.--economic systems 
     that are more open, liberalized, deregulated, and 
     transparent. Because of the crisis, countries across the 
     globe are seeing the advantages of open, accountable 
     governments and financial systems.