Over the past few weeks, the outlook for Asia has turned much bleaker. Indonesian students and workers are rioting over worsening economic conditions while the Suharto government stalls yet again on complying with the third agreement it reached with the International Monetary Fund. South Korea's unemployment rate is rising, industrial production plunged 10% in March, and the chaebol and labor unions have yet to iron out details of how to manage layoffs at the massive industrial combines. Across the region, in Malaysia, Singapore, Hong Kong, and elsewhere, consumer spending is slowing to a trickle. Japan, meanwhile, seems unable to help itself, much less its neighbors, through this crisis. The government's latest economic plan is still widely viewed as inadequate, the yen and the banks remain under pressure, and business and consumer confidence is at a low ebb. Even the region's fastest grower, China, is feeling the region's downward pull: First-quarter gross domestic product fell to 7.2% from 8.2% a year ago, and industrial output grew 8.2%, down from 11%.
What started as a currency and financial crisis last year is rippling through to the real economy of the region, and with far more devastating effect than had been expected. And that, in turn, is making the markets nervous about spreading bankruptcies and shaky banks. What some experts had thought to be a one-to-two-year workout process may turn out to be far more prolonged. It may also be more painful, unless governments throughout Asia start demonstrating more resolve. In Indonesia, the Suharto government should stop dickering with the IMF and start sorting out its banking problems. In Korea, the new government of Kim Dae Jung should pressure business and labor to move quickly on streamlining industry. Above all, starting in Japan, governments must authorize a rapid and thorough cleanup of bank balance sheets.