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Southeast Asian economies will rebound, UI economics professor says
IOWA CITY, Iowa -- Economies in southeast Asia could show signs of improvement
in 1998, if political leaders in the affected countries are willing to undertake
reforms spelled out by international regulators, says a University of Iowa
expert on global economics.
William P. Albrecht, a professor of economics who served on the U.S. Commodity
Futures Trading Commission from 1988 to 1993, says the coming year will be
important for economic policymakers as well as for investors looking for potential
"By 1998 you should be able to see if the governments in Thailand, Indonesia
and elsewhere are seriously attacking the problem by the way they respond
to the stipulations of the International Monetary Fund (IMF)," Albrecht
says. "All of the countries that have been affected by the crises in
Southeast Asia are capable of rebounding, but they have some difficult political
and regulatory issues to address."
U.S. investors, government policymakers and the financial media have been
focused on Southeast Asia this fall as markets throughout the region nearly
collapsed under record selloffs by traders. The selling sparked turmoil in
other markets in Asia, the United States and Europe.
Thailand and Indonesia have asked IMF officials for help in restarting their
economies. In late November leaders in South Korea also approached the IMF
about a possible bailout under similar pressures.
Albrecht says that in exchange for monetary help from the IMF, the agency
is likely to require several policy changes, including tighter restrictions
on government spending and government-backed loans, tighter controls on the
banks and brokerage firms, and more authority for domestic regulators to close
troubled financial institutions.
The goal is not to model the economies of other countries on the United States,
but to make sure that international financial standards are followed and that
regulators have the authority to enforce the standards, Albrecht says.
"Regulators should be free from political pressure." Albrecht says.
"Clearly they are not in many of these countries."
Albrecht says many of the countries in Southeast Asia have based their economies
on strong ties between government and industry. While that allows some industries
to thrive, it also puts domestic regulators in the awkward position of having
to police the activities of businesses that government leaders want to succeed.
Albrecht says some signs investors can watch for in the coming year include:
-- Are banks and brokerage firms allowed to fail? Do financial institutions
have to deal with the consequences of bad choices and policies? If institutions
know they will be spared bankruptcy by the government, they are more likely
to make bad loans and take unwise risks. Economists call this "moral
-- Do regulators have independence from political pressure? Regulators often
don't have the authority to enforce financial guidelines or are pressured
to look the other way. A high-profile investigation and successful action
would signal that regulators have the necessary control.
-- Is the country allowing foreign competition? Many of the Southeast Asian
financial markets were carefully protected from competition by brokerage firms
and banks based in the U.S. and Europe.
Albrecht says nearly all the countries in Southeast Asia, as well as Korea,
have the basis for strong economies. All have hard-working labor forces, relatively
high savings rates, a history of entrepreneurial spirit, and fairly high education
And, a successful Southeast Asia, as well as South Korea, helps the world's
economy, he says.
"It is clearly in our interests to help these countries out, not only
from a humanitarian standpoint, but also because U.S. companies export a lot
to these countries," Albrecht says.