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THE WALLS GO UP ALL OVER ASIA (int'l edition)In Asia, country after country retreats from the global economyThe Asian crisis is entering a new stage when beleaguered nations erect walls between themselves and the dangerous forces of world markets. Malaysia Prime Minister Mahathir Mohamad imposes sweeping capital controls, fixes the exchange rate--and sacks his reformist Deputy Prime Minister. The Hong Kong government pumps $12 billion into its stock market to foil speculators and plans capital controls of its own. Taiwanese officials make it more expensive to short stocks. South Korea cancels the sale of Kia Motors Corp. rather than accept low but realistic bids for the bankrupt carmaker. And Japan refuses to let its biggest banks fail. These are just the kind of moves that U.S. and International Monetary Fund officials deplore. They signal a retreat from the global economy and a collective repudiation of the Western doctrine that only deep structural reform and a total commitment to free markets can provide a way out of Asia's mess. It's a big change of heart: Earlier this year Asia's leaders swore they would stay the course. Even the acerbic Mahathir, who despises hedge-fund managers, supported an IMF-style workout. But after seeing their currencies pounded by speculators and their economies grind to a halt, Asian leaders are having second thoughts. Never mind that the region's rotten banks created the crisis in the first place. Right now, all the Asians feel is the pain of high interest rates, record bankruptcies, and rising social tension. Reform sounds good in principle, but recovery--perhaps even survival--comes first. In these parlous times, few have the stomach for a U.S.-style workout in which ruthless bank examiners shut down insolvent lenders, sell off assets to the highest bidder, sack inept managers, and cut off corporate deadbeats. To their credit, the Indonesians and Thais still seem to be pressing ahead with reforms. But other nations are signalling they will go for growth and emergency bailouts, no matter what the long-term cost. BANK HOLIDAY. Japan is the most important player in this new drama. For months, the Japanese have been making noises about a tough cleanup of the banks. But in the last week, the tune has changed. Those backing a radical banking sector overhaul are ''amateurs,'' says Finance Minister Kiichi Miyazawa: They have no idea what chaos will ensue. Nomura Research Institute economist Richard Koo concurs. Japan's banking woes run so deep that a heavy-handed workout favored by Washington would be a disaster, he says. It would set off a chain reaction of bank failures and huge corporate bankruptcies that would cripple Japan for years. ''If you close down the banks, you also kill a lot of good borrowers,'' he warns. The Japanese point out that even U.S. authorities balked at shutting down some regional banks in Texas and New England when property markets crashed in the late 1980s and early 1990s. And when Hokkaido Takushoku Bank Ltd. failed last November, it did grievous economic harm to Japan's northernmost island. So Prime Minister Keizo Obuchi and the ruling Liberal Democratic Party are trying a variation of the old convoy system. Regulators will not force any more big banks to shut, however much they deserve that fate. And a rapid sell-off of loans at cut-rate prices doesn't seem in the cards: It would force too many massive write-offs too fast. Instead, Tokyo will merge weak banks with strong ones, unwind bad loans slowly, and use taxpayer money to refloat the system. Hence, the frantic efforts by the LDP to stage-manage a merger between the ailing Long Term Credit Bank of Japan Ltd. and a stronger Sumitomo Trust & Banking Co. TREADING WATER. The big question is whether this soft-landing approach will be too soft. The government's current ''Total Plan'' to set aside $214 billion to protect depositors and shore up the capital bases of the banks might just keep the whole rickety structure in place. Politically favored borrowers may end up getting new credit regardless of the viability of their businesses. Nor is Japan interested in telling global investors the true level of bad debt in the nation by publicly releasing new audits of the top 19 banks. None of this constitutes a strong sign to global investors that Japan will get back on track fast. Yet the Asians have fallen so far from grace that it's easy to sympathize with their position. Even the Thais, who have tried to play by the IMF book, think there is something amiss when short-term capital flows can cause such havoc. ''I sympathize with Hong Kong, which has been a model of free trade and is still under attack just because every other place is under attack,'' says Thai Deputy Finance Minister Pisit Leeahtam. Many Asians think that Mahathir has a point when he states that controls are the only way to keep capital in the country to rebuild the financial system. For a devastated Asia, the temptation to opt out of the international economy is starting to look a lot more attractive than anybody in the West realizes.
By Brian Bremner in Tokyo and Mark L. Clifford in Hong Kong RELATED ITEMS
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Updated Sept. 3, 1998 by bwwebmaster
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