Asia needs to wake up and smell fear in markets

By William Pesek, Bloomberg

Let’s be blunt: Asia is pretty lame in the cooperation department.

Sure, it has all these highfalutin groups, such as the Association of Southeast Asian Nations, that purport to bring the region together. ASEAN, along with the Asia-Pacific Economic Cooperation forum, is proving toothless as global markets effectively crash.

It’s heartening to see Southeast Asian officials and their counterparts from Japan, China and South Korea consider plans to rescue financial institutions facing liquidity problems or holding distressed assets. Should investors hold their collective breath for these modest steps to play out?

Not when you consider the sense of denial pervading Asia, evidenced by comments by Philippine Finance Secretary Gary Teves. While explaining how Asian officials plan to maintain calm, Teves said: “Despite us being in a better position, we would like to convey a message we’re still there to prepare ourselves just in case the financial crisis hits ASEAN.”

Just in case? We’re way beyond that. With higher food and energy costs pushing more Filipinos into poverty, market turmoil forcing Asian governments to delay bond issues and Indonesia closing its stock market for three days, “just in case” doesn’t pass the laugh test.

Neither does Japanese Prime Minister Taro Aso’s call for the U.S. to act faster to fix the credit crisis. The message is fine given the dismal state of the U.S. economy; the messenger isn’t. Japan lecturing anyone on banks and avoiding recession?

Over in Korea, leaders are too busy to lecture. Stocks are plunging and the won is down the most since the 1997 Asian crisis after Standard & Poor’s said banks may struggle to refinance their debt.

Korea was the post-crisis success case. Now, just as in the late 1990s, investors are concerned about the ability of Korean banks to service debt. Some Korean companies didn’t learn the lessons of a decade ago, issuing too much short-term debt in foreign currencies.

Yet Korea isn’t Iceland. The need for President Lee Myung Bak to come out and say Korea isn’t crisis-bound speaks volumes about Asia’s precarious place in a worsening global economy.

It’s intriguing that the three nations that accepted International Monetary Fund bailouts a decade ago are among the hardest hit. Thailand’s woes involve politics, Korea’s are about its dependence on exports, and Indonesia’s relate to market vulnerability. What all have in common is a lingering perception problem about the safety of Asia’s emerging markets.

Asia has come a long way since 1997. That message won’t resonate if the region doesn’t act fast. For all the talk about brotherhood, Asia competes far more than it joins forces.

How might an Asian effort look? The multilateral approach taken by European Union members after weeks of go-it-alone strategies offers clues. While Asia lacks an EU, it would be great to see China, with US$1.9 trillion of reserves, say it will work with Japan, Korea and Southeast Asia to provide assistance as needed. Neighbors should make the same pledge to China.

Some kind of Asia-wide communique endorsing efforts by the U.S. and Europe would help, too. If nothing else, it might dispel fears central banks are about to dump trillions of dollars of U.S. Treasuries.