The Depressing News from Asia

Abstract

The World Bank began this decade talking of Asian miracles. It may enter the next one speaking of Asian depressions. After World Bank Vice President for Asia Jean-Michel Severino used the "d" word in May to describe the course of events in developing Asia, the organization was forced to come up with a technical definition for what had been a term of art.Depressing the news has been. Since July 1997, many of the region's bourses have fallen by half or more. The region's currencies have declined by even greater magnitudes against the US dollar. Growth forecasts have been steadily ratcheted down. Now, there is fear of a ripple of contagion throughout the rest of the world.In the United States, the effect of the Asian crisis has been to slow growth, generate real exchange rate appreciation, and contribute to a growing trade imbalance. In Global Economic Effects of the Asian Currency Devaluations, we analyzed the impact of events in Asia on both the region and the rest of the world.2 In this piece, we update our analysis to take into account several events--most notably, the dramatic decline in the Japanese yen--that have occurred since the earlier work went to press.