Asia Is Far From Being "Fixed"

Growing euphoria over Asia's economic rebound is starting to echo the exuberance of the days just before its crash. Stock markets in Hong Kong and Seoul are nearly back to their all-time highs, capital markets are pouring in loans, and mutual-fund managers are talking up Asia's potential again. The message is that Asia is "fixed" and we can all pick up where we left off nearly two years ago. Wrong. The critical regulatory and economic reforms needed to sustain a rebound are only half-done. Unless they are completed, hopes of reviving double-digit growth are misguided.

Take Korea. Its trade surplus is up, its stock market is booming, and its projected growth for next year is 3%. Banks and other industries are opening to foreign investment. But progress is achingly slow, and the chaebol are only starting to restructure. Capacity has not been cut, and profitability has not improved. Statements by Daewoo's chairman that his company will finally sell assets to lower debt are good news--if he follows through.

Thailand has bottomed out, but critically needed bankruptcy laws have only recently passed. Most companies have not even begun to streamline their operations. Indonesia remains a political powder keg, riven by ethnic strife. And Malaysia, which faces critical elections, has implemented little economic reform.

The strength of Asia's two biggest economies--Japan and China--is also in doubt. Tokyo has pumped $60 billion into its banks, but they are still not lending. Sony, Mitsubishi, and other big companies have only just announced plans to lay off employees and restructure. The IMF expects Japan's economy to shrink again in 1999. Meanwhile, China's economy is being kept afloat by enormous public-works spending. With state enterprises shedding millions of workers, exports weak, and its banks in trouble, China is struggling to maintain growth.

The good news is, the worst is over. But over-optimism, unemployment, politics, and simple denial threaten to undermine the rebound just as it begins.