In proclaiming the crisis over, International Monetary Fund (IMF) Deputy Managing Director Stanley Fischer exuded:

The strategy followed in the IMF-supported programs in Korea and Thailand is beginning to work, and we are confident that it can work, too, in Indonesia. The Asian crisis has been contained, and it is reasonable to believe that, deep and unfortunate as the crises in individual countries have been, growth in this region can resume within a reasonable period.

At last November’s Vancouver meeting with the leaders of 17 Pacific Rim nations, President Clinton dismissed the problems in Asia as a "few little glitches in the road; we’re working through them."

The reasons for the politicians’ relief weren’t hard to find. After a period of freefall in the Asian stock markets and currencies in the second half of 1997 and early 1998, the crisis seems to have leveled out. Thailand, South Korea, the Philippines and Indonesia have swallowed their foul-tasting IMF-prescribed medicine and now the U.S. banks can resume looting their corporate assets at bargain-basement prices.

The banks may be breathing a sigh of relief, but the mass of workers across Asia are facing conditions comparable to the Great Depression of the 1930s.

In February alone, more than 2 million Indonesian workers lost their jobs. The currency crash in that country plunged the pay for workers at Nike’s factories from $2.46 per day to 70 cents per day.

But don’t expect to hear too much concern about the social crisis which is devastating Asia–especially from the people who are most responsible for it.

This is certainly true of of Western banks and financial institutions, which in the lead-up to the crisis pumped capital into Asia as if there were no tomorrow.

The five countries that have been the most damaged by the crisis–Indonesia, Malaysia, South Korea, Thailand and the Philippines–had "net private inflows of $41 billion in 1994. By 1996, this had jumped to $93 billion. Over these years the inflows substantially exceeded the total current deficit, allowing governments to accumulate $37 billion in additional reserves," wrote Martin Wolf in the Financial Times in March. "Then, in 1997, came the panic: the net inflow turned into an estimated outflow of $12 billion. The swing in the net supply of private capital was $105 billion in just one year, a staggering 10 percent of the combined pre-crisis gross domestic of the five countries… So the capital inflows were the carrier of the new Asian flu."

Only a year ago, the same experts who are saying today that the Asian crisis has passed were telling us that Southeast Asia represented the best that the world economy could offer investors.

Then, the U.S. ambassador to Malaysia described the country as "the cherished child of investors," according to the Far Eastern Economic Review. Credit Risk International, a research firm for Wall Street, continued that "on a scale of 1 to 7 measuring the risk of countries, Malaysia was classified 1, minimum risk in April 1997. Fleming Investment Management agreed, claiming in February 1997 that the "Asian miracle is not finished."

Of course, this is the same Malaysia which, today, forks over almost one-fifth of its gross national product (GDP) to banks in debt service. Banking sector debt stands at 185 percent of the GDP.

Stanford University economist Paul Krugman, looking back on his forecasts for Asia was more honest than most. Recently, he told an audience of bankers in Hong Kong:

In short, I was 90 percent wrong about what was going to happen to Asia. However, everyone else was 150 percent wrong –they saw only the ‘miracle’, and none of the risks. So while nobody predicted what actually happened, I guess in that sense I came closest–which is presumably why I'm here right now.

So what is going to happen to Asia now? Let me let you in on a secret: I don't really know. And I wouldn't be surprised if whatever I say now turns out to be 90 percent wrong all over again. But what isn't a secret, of course, is that nobody really knows what comes next. And if I can get it even 10 percent right, I am probably well ahead of the game.

It isn’t simply that their record on Asia should make one doubt the mainstream economists’ current pronouncements. It’s that they won’t even understand the nature of the crisis. In reality, the economic meltdown which began last July in Thailand isn’t really an Asian crisis per se. It is part of a world economic crisis brought on by the same economic forces that the press and politicians are so eager to celebrate.

From the 1970 onward, the "Asian Tigers" pursued economic policies of export-led development. They carved out an increasingly large niche for themselves in the world markets by combining slightly out-of-date technology bought from Western firms with low-wage labor. In this way, they were able to move on from textiles to iron and steel, shipbuilding electronic components and finally to cars.

The problem is that this model relies on the rest of the world–and especially the U.S. and Europe–to buy the growing volume of exports. But demand for the Tigers’ exports slumped when there were recessions or stagnation elsewhere in the system. And the more that countries try to follow the "export-led" path, the more problems they all face when the export strategy is no longer easy.

Before the Asian economies crashed, the Tigers’ industrial plants operated at only 60-70 percent of capacity. In China, 8-10 percent of national output is piled up in warehouses, unable to be sold. With products piling up unsold, firms have found themselves unable to repay loans extended to them on the assumption that sales would continue to grow.

The Asian economies’ overproduction is only the sharpest edge of a world crisis of overproduction. In industry after industry worldwide, capacity to produce far outstrips the ability of the bosses to sell their goods profitably. If the worst of the crisis appears to be over, the underlying conditions which led to Asia’s crisis haven’t been addressed.

The IMF-enforced free-market dogma calls on the Tigers to export their way of the crisis. With massive currency devaluations, their goods are cheaper by world standards. Yet the credit crunch is so tight that corporations haven’t been able to acquire enough capital to gear up production for the export market. For this reason, the predicted "flood" of cheap exports putting pressure on certain U.S. industries hasn’t yet been felt. But when these production systems come on line, the world glut will become an even bigger problem.

Moreover, the second largest economy in the world —Japan’s–continues to wallow edge of recession. Clinton and other U.S. policy makers harps on Japan to stimulate its economy. The U.S. is certainly concerned to get the Japanese to buy more American goods. But it is even more concerned to keep the Japanese economy from falling into an even deeper crisis.

An MIT economist recently remarked,

In Tokyo, everybody is waiting for ‘Big Bang.’ They might be in for a surprise; big bang might be the collapse of the Japanese economy rather than a new age of comptitive finance. Surely the greatest paradox today is that one of the richest countires in the world, Japan, is flirting with bankruptcy.

It's not over. It would be nice to go into the holiday season comfortable in the knowledge that the Asian turmoil is dying down and will become an unpleasant memory sometime in 1998. But that's too good to be true. I expect Indonesia and Malaysia to become the next flash points in the Asian drama. Even after the flashes cease, the Asian debt crisis will not be fully resolved in 1998.

Indonesia today is more tense that at any time in President Suharto's 32-year rule. Despite a huge IMF program, onshore confidence in the stability of the currency is almost non-existent. Ordinary Indonesians refuse to hold their currency, the rupiah.…It is reasonable to expect social unrest to be expressed through spontaneous violent demonstrations.

The military clearly expects this and security forces have been increased in Jakarta. But controlling outbreaks of violence in several parts of the archipelago will make it clear to all that the military is ruling the country. While all this is going on, the economy will be a secondary concern, and during the first quarter of 1998 I expect the currency to sink to a now unthinkable level.

WHITEWATER SPECIAL Prosecutor Kenneth Starr’s best efforts to keep the Monica Lewinsky sex scandal alive failed to cut into President Clinton’s high standing in the polls. In fact, in a period the press proclaimed the "most dangerous" of his presidency, Clinton enjoyed his highest popularity ratings ever.