President Clinton did something so shortsighted and potentially costly last week in scuttling a trade deal with China that you begin to wonder if the Kosovo policy jinx is spreading to Asia.
Some Clinton insiders just shake their heads in chagrin when asked to explain why the president backed away from a deal that would have opened Chinese markets as a condition for Chinese entry into the World Trade Organization. They concede that the reason for Clinton's last-minute reversal was entirely political: He wanted to appease protectionist congressional Democrats and avoid what might look to critics like an embarrassing concession to visiting Chinese leader Zhu Rongji.
Clinton's flip-flop on the WTO sullies one of the few areas -- free trade -- where he reasonably can claim to have acted consistently on principle, rather than short-term politics. In that sense, it's a measure of just how weak Clinton has become -- that he would sabotage his legacy to gain a few weeks' respite from criticism.
The administration is betting that it can tiptoe back to Beijing and salvage a WTO deal before Labor Day. But that's a risky bet about an issue that Clinton himself has rightly said is crucial to America's economic future. No other country has more to gain from a free and open Chinese economy than we do.
The larger danger of Clinton's WTO decision is that it could exacerbate China's economic troubles just as a fragile recovery is beginning elsewhere in Asia.
Something quite amazing has been happening the past few months in South Korea and Thailand -- two of the countries that were hardest hit by the Asian financial crisis: Their economies are beginning to recover, like resilient buds of spring after a brutally nasty winter.
The financial markets already are signaling a turnaround. Stock market indexes in Seoul and Bangkok roughly have doubled from their lows of last year. Meanwhile, interest rates for Korean and Thai debt have fallen -- with spreads between their debt and that of Western countries moving toward pre-crisis levels.
"For the countries closest to the crisis, the worst seems to be over," says Tom Byrne, the senior Asia analyst at Moody's Investor Service. Moody's recently upgraded South Korea's bond rating, back to its pre-crisis "investment grade" level; Moody's rates Thai debt one notch below that of Korea.
More important than the simple fact of recovery in Korea and Thailand are the reasons for it. Strong governments have taken first steps to break the stranglehold of "crony capitalism" on those economies. Insolvent banks have been allowed to fail; inefficient companies have been forced to restructure operations; asset prices have been free to fall to levels where the market can clear -- and rebuilding can begin.
These structural changes -- as potent in their way as China's transition from communism to capitalism -- are encouraging Western investors to lend money again. Analysts caution that there's still much to be done in Korea and Thailand -- the process of clearing away corrupt and inefficient business is only beginning. And some worry that the Koreans and Thais will now ease up, dissipating the gains they've made so far.
But Lawrence Summers, deputy Treasury secretary and the administration's chief fireman during the Asian mess, thinks some crisis countries are beginning to turn the corner.
"Where countries have been able to carry through on their reform commitments -- as in Korea, Thailand and the Philippines -- results are starting to come in the form of lower interest rates, new investment and increased growth," says Summers.
Japan remains mired in a deep recession -- clouding prospects for regional recovery. But even in Tokyo, financial markets are signaling hope that a recovery is ahead. The Nikkei index of leading Japanese stocks is up more than 25 percent this year in yen terms, on hopes that the government's huge stimulus package finally will get the economy moving.
The Asian recovery, when it gets rolling, should be as rapid and surprising as the financial typhoon that swamped the region's economies in 1997. The recent news from Korea and Thailand is encouraging -- a sign that the harsh medicine prescribed by the Clinton administration and the IMF may be working as intended.
But that recovery is still fragile, and the most delicate factor may be China. A year and a half ago, during the darkest days of the Asian crisis, China was our most reliable economic ally in the region. An important reason the crisis didn't become even worse was that Zhu Rongji kept his promises to maintain economic growth and avoid devaluation.
Now the Chinese economy is looking shakier. China's exports and economic growth are slowing, and foreign investment is shrinking. Some U.S. officials fear the pressures are building for a Chinese devaluation, which could trigger a disastrous wave of competitive devaluations by other Asian economies. The failure of Zhu's visit won't make things any easier. That's a problem for Zhu, but it's also a problem for the United States.
Clinton's political capitulation on the WTO was a sorry example for a supposed superpower. You might almost call it "crony capitalism." Clinton could learn something from the more principled, disciplined leaders whose tough decisions are nurturing a revival in South Korea and Thailand.