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Asia compromises on reform

It's easy to be pessimistic about Asia now the US is slowing. US growth and imports helped Asia rebound from the crisis in 1998. In 1999, Asian finance ministers proclaimed to the IMF/World Bank meetings in Washington that exports had kick-started growth - Korea's economy grew by 7% in 1999, following a 5.8% decline in 1998; Thailand's grew by 4% after a 10% fall in 1998. Huge current account surpluses restored currency reserves to healthy levels, rebuilding sovereign creditworthiness despite the assumption of huge contingent liabilities from derelict banking systems.

The real work, reforming banking systems and restructuring corporate sectors, was just beginning and only the foolish believed this would be as speedy or as straightforward as the V-shaped rebound of macroeconomic indicators. Today, as economists debate the extent and depth of the US slowdown, fears of a dramatic decline in the volumes and prices of Asian IT-related exports to the US are depressing stock prices. Asian currencies have been declining for several months against the dollar, a trend likely to continue. Asian governments are now happy to accept weak currencies as they seek to restore flagging growth by cutting interest rates. At a time when the yen is weak, they don't want to see imports suddenly booming.

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