As the year begins, those who ponder Asia-Pacific inevitably focus on the region's financial crisis. At the beginning of 1997, most economists and regional analysts were still predicting an unfettered continuation into the next century of the so-called Asian economic “miracle.” But a combination of imprudent foreign investment, faulty internal planning, overly optimistic fiscal predictions, grandiose local investment, and substantial flat-out corruption created a huge and unprecedented fiscal upheaval. The effects: 

Asiaweek observed that “it was East Asia’s shining pride in its progress, harmony and global ascendancy, not to mention the Asian Way, that dimmed. Initially unbending, Asian leaders eventually shuddered before the gathering darkness, ineptly mouthing hows and whys.” 

And The Economist noted, “once-booming economies such as Thailand, Malaysia, and Indonesia were deserted by investors, thanks to scares about wobbly financial systems and corrupt or incompetent governments.” But none of this was seen as too perilous until the crisis spread to Japan and South Korea, two of the world’s largest economies. 

In the last few months, the rest of the world—most significantly the IMF—has responded to the crisis with a safety net of loan guarantees and bailouts totaling hundreds of billions of dollars. In return, demands have been made on local governments to clean up their financial policies and introduce a new openness—“transparency” is the buzzword—to their financial dealings. But there are already signs of trouble in the short term (e.g., Indonesia’s recent unwillingness to meet IMF budgetary stipulations agreed to only weeks ago), including almost daily announcements of new scandals, plunging stock markets, and deepening financial disaster in regional markets. 

So it’s not surprising that world attention is focussed on the immediate crisis, including the practicality (not to mention the morality) of bailing out misguided and still-secretive private financial institutions, as well as shaky local currencies, on such a massive scale. (Many conjure up the Mexican peso crisis of the mid-'90’s; most observers agree that the subsequent bailout staved off a collapse of the Mexican economy, but just as many question the prudence of reallocating so much of the world’s wealth to alleviate a crisis brought on by one nation’s gross fiscal incompetence.) 

But assuming that the economies of Asia don’t collectively fall to rubble (too gruesome to contemplate, and in any case not likely), what are the long-range implications? 

For several years, MIT economist Paul Krugman has argued that the “Asian Miracle” was largely a matter of smoke and mirrors. In the August 1997 Fortune, Krugman attacked the notion that the “miracle” was the result of inspired government and industrial policy—advantages that could sustain Asian economic growth ad infinitum. It isn’t inspiration, he said, but perspiration that fueled recent growth: “You can get a lot of economic growth by increasing labor force participation, giving everyone a basic education, and tripling the investment share of GDP, but these are one-time, unrepeatable changes.” Sooner or later the growth was bound to slow down. But this theory, says Krugman, “predicts a gradual loss of momentum, not a crash.” The current crisis, Krugman believes, is the result of anomalous practices that will eventually straighten themselves out. Then: 

James Rohwer has a somewhat different notion. In the October 13 Fortune, Rohwer declares that, far from “a long-term, continent-wide economic decline” or “a Latin American-style financial collapse,” the current crisis is

Rohwer is certain that inevitable adjustments in regulation, trade and capitalization practices will free Asia to do what it does best: borrow and improve upon proven Western business practices, to its great advantage. Asia, he says, 

Like most long-range analysts of the region, both Krugman and Rohwer disavow the notion of long-term catastrophe. Krugman sees a retrenchment to slow growth, Rohwer a re-energized march to unprecedented growth and eminence. Neither envisions the end of the world.