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Fri, Mar 22, 2002 - Page 19 News List

Asian economies could be turning into US colonies

When economic crises strike, countries in Asia realize economic dependence on the US is neither wise nor necessary, but when things pick up, thoughts of reform disperse like a fog in the wind

By William Pesek Jr.  /  BLOOMBERG , MACAU

Realizing his customer is an American, Alfred Tang says US dollars are most welcome in his bakery.

"So how are things over in the US these days?" Tang asks.

"Is the economy looking okay?" It's a question that comes up often as you make your way around this former Portuguese colony. When you ask business people, shopkeepers, bartenders or taxi drivers about the local economy, the subject quickly shifts to trends in the US. Macau's reliance on exports and tourism means that as the US goes, so does growth here. Ditto for much of Asia these days.

This phenomenon is hardly new, though it's disappointing to see it's still with us. Following the 1997-1998 Asian financial crisis, the region looked inward to repair its economies and reduce vulnerability to the whims of global growth. Progress has been made -- just not enough.

Last year's slowdown in the US economy shoulder-checked Asia and once again exposed the region's biggest weakness: It's over-reliance on selling goods overseas. Nothing wrong with exports, of course, so long as they're not the entire economy.

Trouble is, the success of Asia's export apparatus over the years has left policy makers loath to change.

When the biggest economy thrives, Asian goods fly off the shelves. In the backs of their minds, officials know boosting domestic demand should be a priority of any nation. But when your economy is expanding rapidly, living standards rise and others buzz about an economic miracle, it's easy to lose sight of the bigger picture. Since the region's export model has worked more often than not, there's been limited enthusiasm for change.

All of which makes you wonder if many Asian economies are becoming -- or already have become -- virtual colonies of the US.

"One would get that impression, if you look how much Asia has riding on the US," says Jose Cuisia, president of Philippine American Life and General Insurance Corp, a unit of biggest insurer American International Group Inc.

Officials in Bangkok, Jakarta, Kuala Lumpur, Singapore and Seoul no doubt shudder at the suggestion they're cogs in the American economic wheel. And they should. When 12 European nations surrendered economic sovereignty to a central bank in Frankfurt, they did it willingly. In Asia's case, the process has unfolded gradually, quietly and, in many cases, unwittingly.

Governments didn't use the post-crisis recovery to strengthen banks, increase transparency and sell state-run companies as much as they should've. Ditto for corporate executives. The region's quick snapback from the Asian crisis was a curse in disguise because it reduced the pressure for change. That left economies vulnerable and needy last year as the US slid into recession.

Even Japan, the world's second-biggest economy, is hitching its hopes on the West. Complete paralysis in Tokyo has scuttled any hopes Prime Minister Junichiro Koizumi can repair the country's malfunctioning financial system. The Nikkei 225 stock average rose 2.6 percent Tuesday as good news on US growth fueled optimism demand for Asian goods will soon recover.

If Asia's export-dependent economies don't want to be relegated to mere extensions of the US, some serious retooling is needed. From Tokyo to Singapore, officials need to stop relying on a single customer, or at least a small number of them. Sure, central banks have cut interest rates aggressively and governments have done lots of fiscal spending. Yet Asia is mostly betting on a US rebound.

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