As Storms Gathered In Asia

Good journalists try to "smell" a problem before they can prove it--and send up warning flags well before they know what it all means. BUSINESS WEEK certainly didn't predict the Asian crisis, but 14 months ago, senior correspondent Pete Engardio did get a whiff of something very wrong. His Cover Story for Dec. 2, 1996, "Asia: What's Behind the Slump," sounded the alarm. Pete saw falling exports, rising labor costs, white-elephant construction projects, a bribe-based business ethic, and way too much capacity in too many industries upsetting Asia's dreams of growth. He noted that there seemed to be lots of easy money making Indonesians, Malaysians, and Thais seem richer than their economies warranted.

Unfortunately, this "excess liquidity" theory was easier to describe than prove. That's because, as we now know, senior Asian officials were cooking the books. Debts that countries and businesses reported were a fraction of what they really borrowed.

As our correspondents in Hong Kong, London, New York, Singapore, Tokyo, and Washington dug into the story, it became obvious that Japan's familiar banking problems were only the tip of the iceberg. In February, Tokyo bureau chief Brian Bremner and Asian finance specialist Mark L. Clifford estimated that $660 billion in rotten loans was piling up across the region and called Thailand a "first-class banking disaster"--five months before it actually collapsed.

Yet many saw Thailand only as a one-country bust. Hong Kong-based Bruce Einhorn, teaming up again with Clifford, Bremner, and Singapore bureau chief Michael Shari, argued the opposite. In "The Currency Crisis Sweeping Southeast Asia" (July 28), they predicted that destructive devaluations would sweep across Asia. Even so, a lot of officialdom was still in denial. When the U.S. Treasury came up with a $3 billion bailout for Indonesia in late October, our Cover Story on rescuing Asia (Nov. 17) estimated that an Asia-wide bailout of $100 billion might be needed. At the time it seemed extreme, but today it may well be double that number.

Did our Asian team do its job? BUSINESS WEEK readers got predictive, analytical stories early and often. This week's Cover Story is in that tradition. It offers a way to fix the mess before it takes down global markets. While that possibility is now widely accepted, this time we fervently hope it turns out to be wrong.

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