Asian virus spreads to the giants Russia, China: Falling mammoths would make bigger splash than mere tigers.

December 06, 1997

THAILAND'S credit rating was downgraded to one notch above junk-bond status. Citicorp agreed to take over majority shares of First Bangkok City Bank -- something Thailand previously forbade. South Korea's bailout from the International Monetary Fund could top a record $60 billion. Japan says it can look after itself.

But if the Asian virus (formerly the Asian miracle) spreads, there are bigger countries at risk. Russia and China give cause for concern. Splashes they could cause would be far bigger.

Although the crisis spread from failed real estate speculations in FTC Thailand and Malaysia, there is an even bigger bubble in China. Acres of commercial buildings rise in Shanghai with little regard to potential tenants. China's central bank will be reorganized to replace provincial and municipal banks that are too beholden to provincial governments: They demand loans to state enterprises they can employ workers -- the socialist tradition -- without regard to losses. Bad debts equal one-fifth of commercial bank assets.

Small wonder that president Jiang Zemin instructed party leaders to learn from the mistakes of Asian neighbors. China is not without assets to combat the crisis, notably $134 billion in foreign exchange reserves.

Russia's central bank has been using its reserves to prop up the ruble. Senior officials visited Washington seeking loans from the IMF and World Bank to shore up confidence in the central bank, and then sought $2 billion from commercial banks. Foreign investors have unloaded nearly $5 billion in Russian treasury bills. President Boris Yeltsin shook up his government, dropping the free marketeer Anatoly Chubais as finance minister while retaining him as deputy prime minister. The message is hazy.

China retains state socialism, for fear of creating unemployment for millions of workers in uneconomic state industries. Russia pays more for corruption, crime and cronyism. The U.S. seeks stability, more effective learning of capitalism and restoration of confidence. Bad news for the former adversaries in the Cold War is no longer good news for the U.S.

Pub Date: 12/06/97

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