COMMENT Asia’s economic model for the last decade has been straightforward: make stuff, sell it to the US, use the profits to fund investment, and repeat. It has worked well. The financial crisis, however, has left the US and other export markets in bad shape, so China and its neighbours have a choice. They can beggar each other by chasing the export markets that remain, or they can stimulate domestic consumption, and help the global economy even as they help themselves.
Many Asian countries had some kind of domestic financial bubble but few are vulnerable to the crisis itself. South Korea, which had a domestic debt boom, and Indonesia, where leveraged investors were playing the stock market, are two exceptions. In both cases there is some risk of flight by foreign investors, but unlike in their 1997 crises South Korea and Indonesia have the foreign exchange reserves to fight back. Policymakers must show that they know how to use them and ensure that no solvent institution fails because it cannot borrow dollars.
