Asia Can't Afford A Breather

After a year of unrelenting crisis management, Asian policymakers can be forgiven for quietly celebrating. If the region's stock and currency markets are any indicators, the worst of the region's economic nightmare may be over. But the party had better be brief. As BUSINESS WEEK's Asia Report Card shows, the job of putting the region back on the path toward strong, sustainable growth is far from finished.

Actually, it has hardly begun. Despite a pace of financial reform that may be breathtaking by Asian standards, authorities have chiseled away a tiny chunk of the region's mountain of $1.7 trillion in bad debt. In fact, that sum is $700 billion higher than BUSINESS WEEK's estimate one year ago of Asian nonperforming loans. More distressingly, the cleanup of debt and excess capacity by Asia's corporate sector is behind schedule.

As this traumatic year nears its close, Asia is at a crossroads that will determine whether the next decade will be one of renewed dynamism or prolonged, Japan-like lethargy. As their banks gradually regain health with the help of the International Monetary Fund, some governments could go for quick fixes, such as easing credit for the most powerful, politically connected conglomerates. The cost will be continued inefficiency, high debt, and the preservation of the system that got Asia into such trouble in the first place.

The other option is to press ahead relentlessly with the unfinished agenda of forcing companies to downsize and restructure their debts, exposing domestic banks to greater foreign competition, and implementing laws that will guarantee greater transparency and fairness. Asian corporations must also wake up to the fact that the giddy, easy-money days of the early 1990s have been replaced by a brutal global environment of falling prices and fierce competition for capital. Asia's savviest business and government leaders understand this and are doing all they can now to ensure they will emerge as winners. Those who do not will fall victim to a fool's recovery.

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