Japan: A nation gears up for a pretty
battles won by corpulent, middle-aged men? Of course not. It
is a job for the under-35s. So why do we now expect the rich,
self-satisfied, overweight middle-aged triumvirate of the
U.S., Western Europe and Japan to lead a revival of world
Population growth in Japan is already at zero, and its
people are steadily aging. Europe is heading toward that fate
quite rapidly. To believe that aging populations can achieve
sustained, accelerated growth is absurd—or a symptom of the
arrogance of economists who ascribe low growth almost entirely
to failures in economic policy, although policy tinkering has
modest impact. As for the U.S., its demographics are O.K.
thanks to immigration, but its private-sector debt levels and
reliance on Asian savings to sustain its consumption habits
are daily becoming more horrifying.
Unfortunately Asia and Latin America have gotten into the
habit of believing they are dependent on this trio for growth.
They have largely accepted, albeit grudgingly, that the three
have the right to control the global economic agenda, not
least through the International Monetary Fund, an organization
that never criticizes Alan Greenspan's money-printing excesses
but rarely hesitates to publicly lecture Asian governments,
even the prudent ones.
What we really need is stimulus from the middle-income
countries. But several in that category are in renewed
crisis—despite having done most of what was asked of them by
the IMF. The problems of Argentina have spilled over to
Brazil, and those of Turkey have set off the usual round of
bad mouthing of emerging markets from the always overpaid,
usually undereducated people who run London's trading desks
and the world's major (mostly American) investment banks.
Their juvenile views get instant exposure on the wire
services, TV talk shows and the business dailies. Western
orthodoxy tells us to believe that markets deliver rational
results. But in practice, crowd psychology rules currency and
So far, east Asia has not been seriously touched by Turkey
and Argentina. But those not-so-far-away problems are making
regional governments hesitant to take the bold measures needed
to stimulate demand at home, such as lowering interest rates.
Asia's huge trade surpluses ought to be spurring spending at
home. But they are not being put to use for fear that
irrational markets will seize on a statistic, such as a
current-account deficit, as an excuse to savage an Asian
So what can Asian countries do? How about having a little
more faith in themselves—and in one another? East Asia is
awash with cash and interest rates are at record lows almost
everywhere. Yet borrowing and spending are—China
excepted—feeble. Governments and companies still insist on
borrowing in dollars. Regional central banks still accumulate
huge piles of high-priced greenbacks, even though U.S.
indebtedness casts a shadow over the currency's long-term
Why not break this dependency on the almighty dollar? For
instance, why doesn't the Bank of Thailand encourage state
enterprises to issue tax-exempt baht bonds offshore, to
attract foreign capital in its own currency? Why don't the
Bank of Korea or People's Bank of China or Taiwan's Central
Bank of China want to diversify their portfolios by buying
debt instruments in Asian currencies, such as the baht, which
have acceptable long-term track records? Why wouldn't the
region's pension funds want won-denominated Korean corporate
debt rather than dollar equivalents with much lower yields?
Thanks to the profiteering of the big investment banks,
Asian governments are at once paying heavily to borrow medium-
to long-term in dollars while getting poor short returns from
their own dollar assets. Why not borrow in the local currency?
New Zealand, whose 30-year currency track record is far worse
than Thailand, has been doing it for years.
For sure, there are technical problems to be overcome if
Asian countries are to provide one another with the currency
diversification they need to escape the stranglehold of the
geriatric trio. But the world, not just Asia, could benefit
from an Asian-led attempt to make the international monetary
system more responsive to the Europe of today, rather than of
the Bretton Woods-era. What is needed are some meaningful
initiatives and a willingness to talk back to Washington. The
alternatives are to stagnate with the status quo, or retreat
into controls and protectionism unworthy of Asian success.
That requires countries to appreciate the potential of one
another's currencies: not the leaden coin of the geriatric Old