Mark my words: the USA is not going to be particularly well-regarded in Asia by the time this financial crisis is through. The wounds from the 1997 crisis and the IMF intervention have barely healed.Anticipating the effects of a US generated crisis on developing world economies, George Soros, writing in the Financial Times, observes that US policy makers have not shown a lot of concern over the years about these "countries at the periphery." Entirely on account of the US financial crisis and the US government's response to it so far -- in spite of their own (generally sound) financial management in recent years -- the economies of many peripheral countries are now at serious risk. Soros explains what happened:
. . . after the bankruptcy of Lehman Brothers, the financial system suffered a temporary cardiac arrest and the authorities in the US and Europe resorted to desperate measures to resuscitate it. In effect, they resolved that no other big financial institution would be allowed to default and also they guaranteed depositors against losses. This had unintended adverse consequences for the peripheral countries and the authorities have been caught unawares. In recent days there has been a general flight for safety from the periphery back to the centre. Currencies have dropped against the dollar and the yen,* some precipitously. Interest rates and credit default premiums have soared and stock markets crashed. Margin calls have proliferated and spread to stock markets in the US and Europe, raising the spectre of renewed panic.Soros calls upon the United States to protect not only itself, but the countries of the periphery from this crisis:
It is time to start thinking about creating special drawing rights or some other form of international reserves on a large scale, but that is subject to American veto.The credibility of United States' claim to its position of global leadership is the line. But the gloomy prediction I made in early October need not necessarily come to pass. As Soros points out, this requires only that America's leaders act with a view to the future of the world.
President George W. Bush has convened a G20 summit for November 15 but there is not much point in holding such a meeting unless the US is serious about supporting a global rescue effort. The US must show the way in protecting the peripheral countries against a storm that has originated in the US, if it does not want to forfeit its claim to the leadership position. Even if Mr Bush does not share this point of view, it is to be hoped the next president will – but by then the damage will be much greater.
* "Currencies have dropped against the dollar and the yen." See this post about the similarities between the Asian financial crisis and the effect of the present crisis on Indonesia. It was observed that "Indonesia is headed into a spiral of a weakening currency relative to the yen and other major currencies."