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To: scotty who wrote (17768)	9/6/1998 5:47:00 AM
From: Alex	Read Replies (3) \| Respond to of 116779

FINANCIAL CATACLYSM The world needs to take concerted action - before it is too late ------------------------------------------------------------------------ ANY DOUBT THAT ASIA is entering desperate times was dispelled by a host of dire economic figures just out. The statistics for Malaysia show GDP shrinking by 7% in the second quarter. That pattern is being repeated across the region. The latest figures for Thailand and South Korea have the recession closing in on double-digit contraction. Indonesia is, of course, in a class by itself. By comparison, the 4% annual decline projected for Hong Kong looked positively healthy. Moreover, in that case the downbeat news seemed drowned out by the engrossing saga of the government's intervention in the stock market to curb speculation in the local currency. Unfortunately, the doom and gloom doesn't end there. In Japan the Nikkei stock index plunged below 14,000, hitting a 12-year low. The market was responding in part to the political stalemate over bills to reform the country's battered banks. But like other bourses, it was also influenced by unmistakable signs that the Asian financial crisis is spreading across the globe. The prime example was the instability in the world's largest economic basket case with nukes. The debacle in Russia was fueled partly by falling oil prices, which also fanned Venezuela's problems, presaging more trouble in Latin America. Even that citadel of prosperity, the United States, shows signs of slowing down, suffering steep stock-market falls. Desperate times spawn desperate measures. There was certainly a backs-to-the-wall feeling to Hong Kong's price-keeping operation in the stock market. For governments to use public money to shore up share values is not new in Asia. Japan and South Korea, for example, are old hands at it. But for such a move to take place in Hong Kong, the paradigm free-market economy, shows how much the world is entering extraordinary times. Taiwan followed suit with high-profile statements that it was illegal to deal with funds linked to the international financier, George Soros. That may prompt similar restrictions by other Asian countries that believe their economies have been savaged by untrammeled speculation. Another sign of desperation is the renewed interest in currency controls. On a theoretical level, they have been broached by influential economist Paul Krugman of the Massachusetts Institute of Technology. But the sudden resignation of Malaysian central bank governor Ahmad Mohamed Don and the announcement of foreign-exchange controls on Sept. 1 meant that the subject has moved from hypothesis to reality. Prime Minister Mahathir Mohamad is intent on battling his country's recession by boosting government spending and lowering interest rates. Exchange curbs may allow him to do the latter without collapsing the ringgit. That such measures are gaining credence is further evidence that the region's leaders are fast running out of solutions. The drawbacks of forex restrictions have long been clear. Such controls distort risk and thus disrupt markets. They also open the door to corruption among bureaucrats with the power to sanction the sale of foreign exchange, perhaps feeding the kind of crony capitalism that helped land Asia in its current fix. The proponents of these measures, including Krugman, readily concede the flaws. They simply argue that the alternative - the virulent recession afflicting Asia's economies - is even worse. Governments have been trying a range of ad hoc measures to tame the inchoate financial forces wrecking their economies. It is too early to tell if Hong Kong's stock market intervention will ultimately be regarded as a landmark victory over speculators or the first step down a slippery slope leading to the abyss. But at this critical time, Asia needs fewer quick fixes and more substantive measures to restore confidence. The first priority must be the banks. Confidence cannot return if people are worried that their banks will fail. That may be one reason opposition to Tokyo's decision to bail out the Long Term Credit Bank with up to $3.5 billion in taxpayer money seems muted, even though it goes against the prevailing wisdom of letting troubled banks go. The government and opposition must temper their differences and come up with a plan to fix other beleaguered banks. Tokyo's scheme may not be perfect but at least it is a move in the right direction. Stabilization of Japan's financial sector is a key to shoring up Asian markets. The region's creditors must also be prepared to take their share of the pain for misjudged lending by writing off debt that cannot realistically be repaid. That would help alleviate the debt burden that is crushing some Asian economies. Beyond that, work must start on a new financial architecture before the deepening woes of developing countries spread to America and Europe, triggering a worldwide depression. What is urgently needed is a global economic summit, spearheaded by the U.S. and attended by G7 nations as well as key emerging economies. The participants should show their resolve to tackle the financial crisis by announcing quick measures - such as special bonds or a fund to facilitate banking reform - even while they mull longer-term changes to make international systems more stable. To restore confidence, it is time to move beyond piecemeal measures born of desperation to concerted action on a global scale. pathfinder.com

To: scotty who wrote (17768)	9/6/1998 1:49:00 PM
From: scotty	Respond to of 116779

Alex.....Do you remember a few months ago when a top Japanese official suggested that Japan might dump U.S. paper and buy gold?...His statement raised eyebrows and he withdrew his comments, saying he was mistaken.

To: scotty who wrote (17768)	9/6/1998 4:09:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116779

FUND VIEW-Stable yen welcome but reform is key 11:48 p.m. Sep 05, 1998 Eastern By Sarah Davison HONG KONG, Sept 6 (Reuters) - A sudden recovery in the yen against the U.S. dollar has eased pressure temporarily on regional currencies but economists said tough reform remained Asia's key to lasting stability. ''Stabilisation in the yen is good news in Asia generally, but the best this can do for the region is just help to steady sentiment,'' said Chris Tinker, head of regional economics at ING Barings. ''This is not something that will generate a return of confidence in and of itself.'' Over the past 10 days, dollar/yen -- one of the the most important fundamentals for Asian markets -- has weakened to 134 from a close of around 144 on August 26. Dollar/yen was trading at 147 on August 11, one month after the United States joined forces with the Bank of Japan to stem a freefall in the yen as markets fretted over Japan's economy and a possible devaluation in the Chinese yuan. ''This is good news for the rest of Asia,'' said Tim Condon, regional economist at Morgan Stanley Dean Witter in Hong Kong. ''One major source of concern has been the prospect of a collapse in the yen, and that has kind of receded from people's minds. That was really overhanging the regional markets.'' Asian currencies have not uniformly followed the yen into stronger territory in recent days. The Thai baht, the Taiwan dollar and the Indonesian rupiah have all traded stronger but the Korean won -- one of the Asian currencies most exposed to the yen in terms of competitiveness -- has depreciated to 1,342 from 1,308 on August 26. ''The fundamental solution to many Asian countries' problems still lies on the domestic front,'' said Sun Bae Kim, regional economist at Goldman Sachs in Hong Kong. ''The yen or the dollar's move has to be seen in that light. Although it may help somewhat it won't help qualitatively to pull the region out of trouble in the absence of bold measures to put these banking systems on a sounder footing.'' The yen has recovered mainly due to a weaker dollar rather than to any major shift in Japan's economic outlook. Asian economists said risk managers were unwinding long dollar/yen positions for many reasons, including an anticipated shift in U.S. Federal Reserve policy to an easier bias as world markets continue to shudder. The repatriation of Japanese assets on concern about the outlook for U.S. markets, doubts about the sustainability of rapid U.S. economic expansion and active borrowing of cheap yen to fund short-covering positions were also cited as reasons for recent dollar/yen movement. Tinker also said the yen has demonstrated its vulnerability to sentiment, describing it as a ''momentum'' currency. ''Once momentum builds, people get on a roll on this currency,'' he said. ''It tends to trade technically, and once it breaks technical support points, the market goes charging off to the next one without reference to anything else.'' A break of 139 left the yen free to gain to 133, suggesting the market will now consolidate in a range between 133/139. Condon saw the yen resuming its weaker trend after the deleveraging of risk positions ends, and stuck with Morgan Stanley's year-end dollar/yen forecast of 160. This outlook reinforces bank recapitalisation as the number one issue for this region, analysts said, arguing that the huge overhang of non-performing loans is preventing banks from lending, creating a vicious circle where a lack of credit leads to more defaults and even less credit. ''If governments made steps towards starting rather than delaying sovereign issues, if they brought in large doses of capital and injected it into the banks and secured their financial systems, capital would start to flow back into Asia,'' said Abhijit Chakraborrti, strategist at HSBC Securities. ''But the policy response so far remains well behind the curve and has been more destructive than constructive.'' Continued upheaval in emerging markets has made sovereign issues difficult, which will force most Asian nations -- eventually -- to issue domestic debt in a bid to mobilise this region's high savings rate. ''These countries can issue domestic debt,'' said Goldman's Kim. ''There may be a great unwillingness to do that, but that's what most countries end up doing in severe banking crises.'' -- Hong Kong Newsroom (852) 2843 6470; Fax 2845 0636 -- hongkong.newsroom+reuters.com Copyright 1998 Reuters Limited