Commentary by William Pesek
Feb. 13 (Bloomberg) -- The ear-to-ear grin on Yaga Venugopal Reddy’s face may explain Glenn Stevens’s serious demeanor.
Until September, Reddy was India’s central bank governor. When I bumped into him in a Kuala Lumpur hotel lobby the other day, I asked if he missed policy making. He giggled and answered emphatically: “No, absolutely not!” Good answer.
Stevens, Australia’s central bank head, is still on the job, and the change in his tone is striking. In February 2008, Stevens was mulling interest-rate increases even amid a global credit crisis. When he spoke in Kuala Lumpur this week, he stood before the audience a week after his fifth rate cut since September.
I see Australia’s about-face as part of a global phenomenon. The Asia-Pacific region is feeling the pain faster than even pessimists expected. China, an economy on which Australia increasingly relies, is looking more vulnerable by the day. The latest sign of that was January’s 17.5 percent plunge in exports.
“You guys are in trouble,” Stephen Roach, chairman of Morgan Stanley Asia, declared at the same conference that Reddy, Stevens and many Asia-Pacific central bankers attended this week.
The attendees shifted in their seats as Roach explained his belief that China has already slowed to a “virtual standstill,” Japan is “getting clobbered” and Asia’s export-dependent economies are in for a “very difficult year.” It’s not what the central bank governors of Malaysia, Thailand and the Philippines wanted to hear. It’s easy to imagine they might have wanted to retaliate, regardless of how right Roach ends up being.
Troubled Asia
The messenger probably is the problem. Nothing personal against Roach, but hearing a Wall Street economist telling Asian policy makers that “you blew it” isn’t without irony. And really, why should they care what one economist says in light of the U.S. recession. But Roach is right, no matter how politically incorrect.
Love Roach or hate him, Asia truly is in trouble. The double-digit drops in trade are the most obvious sign, as is the extent to which governments are loosening fiscal policy and central banks are cutting interest rates.
Temasek Holdings Pte, Singapore’s state-owned investment company, is worth considering. It lost the equivalent of Sri Lanka’s gross domestic product in the eight months through Nov. 30 as investments in companies from Barclays Plc to Merrill Lynch & Co. came back to bite it. Temasek and Government of Singapore Investment Corp., the nation’s other sovereign-wealth investor, also have stakes in banks such as Citigroup Inc. and UBS AG that are sliding in value.
China’s Dollars
Asian central banks are right to worry about their trillions of dollars of U.S. debt. China is getting antsy about its $682 billion holdings of U.S. government debt getting hurt by unsteady policies in Washington. The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” said Yu Yongding, a former adviser to the central bank.
Remember Asia “decoupling” from the West? It’s starting to look more like Asia unraveling. Just as the so-called Asian Tigers were reduced to sickly kittens in 1997, the region’s growth stars are now recession-bound with fewer options. The post-Asian-crisis recovery owed much to strong U.S. demand. Today, public spending and lower rates only go so far to revitalize nations that are largely export machines.
Made in U.S.
Deepening recessions may cause more desperate behavior. The Bank of Japan’s buying stocks is but one example. The Philippines wants to send more of its people abroad to earn the living wages they can’t at home so they can send money back to families. Officials in New Delhi are protesting a bit too much over doubts India’s economy can grow 7 percent this year.
We all know this crisis was made in America. That doesn’t mean Asian leaders don’t have some explaining to do. One question is why they haven’t done more to create domestic growth. Another is why, 10 years after the Asian crisis, economies are still so sensitive to currency exchange rates. Finally, why haven’t policy makers found a better use for Asia’s vast piles of savings than buying U.S. Treasuries?
More action during the good years would have left Asia better equipped to face slowing global growth.
Malaysia’s Case
Malaysia is a case in point. The way the U.S. has responded to its crisis is rehabilitating the reputation of former Prime Minister Mahathir Mohamad. In the late 1990s, Mahathir was derided as an anti-capitalism firebrand for blowing off advice from the International Monetary Fund. That was before the U.S. began adding “buy American” provisions to stimulus efforts and bailing out entire industries.
The economy lost its groove under Mahathir’s successor, Abdullah Ahmad Badawi. There’s been zero effort, for example, to dismantle an affirmative-action program that benefits the ethnic Malay majority but undermines worker productivity and scares off foreign investors. With Malaysia grappling with the global crisis, doing so now is politically impossible.
It’s quite simple. Asia’s problem is that it never weaned itself from its addiction to America’s compulsive consumers. As skeptics such as Roach warn, the detoxification process is just beginning -- and it won’t be pretty.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Kuala Lumpur at wpesek@bloomberg.net
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