Terrorist Attacks Having Repercussions In Economies of Many Asian Countries by Joshua Kurlantzick For many Americans, the Sept. 11 attacks seemed like the crushing blow that finally pushed the countryís teetering economy into recession. But halfway across the world, Asiaís economies, which export more than $1 trillion worth of goods and services to the United States, actually might suffer even greater damage from the terroristsí cruel plot. Even before Sept. 11, several of the regionís leading economies were treading water. Despite Prime Minister Junichiro Koizumiís frequent announcements that fiscal reform was around the corner, Japan had entered its third recession in a decade. In Taiwanóa world leader in semiconductor manufacturingóthe crash of the global Internet boom already had reduced demand for the island-stateís chips and other silicon components. Still, before Sept. 11, the Asian Development Bank (ADB) predicted that Asiaís economies would enter a period of strong growth by the first quarter of 2002. Now, all bets are off. Just one day after the attacks, Asiaís financial systems paid a price for the close links Pacific Rim nations have developed with the United States since World War II. On Se pt. 12, Asiaís major stock markets plummeted, many plunging further than the Dow Jones and wiping off billions of dollars of wealth in stock-mad societies, such as Hong Kong. Several Asian companies, such as Thai Airways International, delayed scheduled initial public offerings, and some of these IPOs now might never reach the market. As the initial shock of the attacks has faded, Asia has dug in for a sizable downturn. In a research note to select clients, investment bank Credit Suisse First Boston predicted "global stagnationóthe worst slowdown for fifty years, reflecting the weakness of Japan and much of Asia." Sung Won Sohn, chief economist for Wells Fargo & Co., said: "A full-blown global recession is highly likely." Undoubtedly, the attacksí impact on American consumer demand will ravage Asiaís numerous export-oriented industries. "Global stagnation threatens export growth in emerging markets, while the shift towards government spending [in the United States] may reduce import penetration in the U.S, by far the worldís biggest export market," according to Credit Suisse. In addition, any decline in American consumer confidence is likely to result in decreased demand for personal electronics, cars and other consumer goods manufactured in Asia. In Singapore, a country dependent on exports of computer parts to America and on financial services linked to U.S. firms, leaders predict that the economy will suffer its worst year since 1985. Taiwan has been pushed into a deep recession, and Malaysia, where exports are worth more than 100 percent of gross domestic product, is rapidly downgrading its growth forecasts. To make matters worse, "the possibility that the U.S. dollar will decline in the long run could make it more difficult for exporters in Americaís trading partners," warned Robert E. Scott, an international economist at the Economic Policy Institute in Washington, D.C. Tourism, the major source of hard currency in Thailand, Indonesia and several other Southeast Asian states, also will be hit hard. Although it has begun to attract Chinese travelers, Thailand still focuses primarily on Japanese, European and American visitorsóthree regions where vacationers now are worried about both their checkbooks and their airlinesí safety precautions. Indonesia is even worse off. Not only must the sprawling archipelago contend with the fall-out from the attacks, but Islamic militants have begun roaming Indonesia and hunting down Americansóhardly the kind of publicity likely to attract vacationing honeymooners. And then there is Japan, the worldís second-largest economy but a country that remains vexed by serious fiscal problems. "Japan might be perhaps the hardest hit by the global recession, since its banking system was already on such shaky ground before Sept. 11 and could be extremely vulnerable now," Scott said. Several Japan experts have predicted that a number of the countryís most famous banks may go belly-up in the coming months. Other economists have questioned whether Japan might have to rethink its reliance on just-in-time inventory methods, in which manufacturers do not build up large stocks of parts. If global shipping is slowed by tight security regulations, just-in-time inventories may not work. "There may be some change in companiesí cost-benefit analysis regarding just-in-time inventories," said Van Doorn Ooms, director of research at the Committee for Economic Development, a New York based organization that performs business policy research. Despite all this gloom, many Asia experts and Asian leaders remain relatively upbeat about the regionís long-term prospects. After all, over the past 50 years the Pacific Rim has experienced astronomical growth rates, and it was only four years ago that a financial crisis devastated the region. Most of Asiaís larger economies bounced back reasonably well from that disaster. Having learned from the late-1990s financial crisis, many states are employing fiscal stimulus in the wake of Sept. 11, and the ADB is still forecasting that East Asia will grow by more than 6 percent in 2001. (The 6 percent forecast constitutes a downgrading of previous estimates, but it is nothing to be ashamed about, given the anemic 2001 growth rates predicted for Europe and Latin America.) South Korea has launched an emergency plan to inject 2 trillion won ($1.5 billion) into its economy, and Singapore, Malaysia, India, Hong Kong and the Philippines reportedly are considering similar measures. Asia is also forging closer intra-regional trade links that, in the long run, will help reduce the Pacific Rimís dependence on Americaís economy. Southeast Asian nations are developing a regional free trade zone along the lines of North American Free Trade Agreement, and Chinese Prime Minister Zhu Rongji has proposed that China and Southeast Asia explore a free-trade relationship. Thirteen Asian states recently implemented a series of arrangements to exchange currency among their central banks, a move designed to inoculate the region against future financial crises. In fact, some analysts have suggested that the currency exchanges could form the basis for an Asian monetary fund. Whatís more, nations that two months ago were bickering over a potential new global trade round, in which developed and developing countries agree to cut tariffs and open their markets, now are frantically scrambling to begin a round before the upcoming World Trade Organization (WTO) meeting in November in Qatar. Pakistan and India, which formerly opposed some aspects of trade liberalization, now are scrambling to stay on Americaís good side. Both countries grudgingly are backing a round. Perhaps most important, the two largest economies in Asia, Japan and China, actually might derive some benefits from a global recession and war on terrorism. In Japan, analysts say, the recession might allow Prime Minister Koizumi the leeway to actually enact radical reforms because he could blame the pain of reforms on the weakening global economic environment, thereby mitigating pressure on his political coalition. China, too, could come out well. In the new global alliance against terror, China is "keen to play a constructive role alongside the United States, albeit, conditional on certain terms," said Adrian Kuah, senior analyst at Strategic Intelligence, a Singapore-based research firm. Consequently, China, which recently joined the WTO and has become the worldís second-largest economy by purchasing power parity, may speed up the liberalization of its markets to take its place as a leading engine in the global economy and prevent the global recession from becoming too deep. Joshua Kurlantzick is a freelance writer in Washington, D.C.