A Break in the Clouds
Japan moves to recapitalize its banks, the U.S. cuts interest rates--twice. There's more pain to come, but Asia's financial crisis may be bottoming out
By ANTHONY SPAETH Singapore

The greater the international crisis, the stronger the need for action. But since that's complicated, it's far easier for the experts to get together and discuss ... and discuss and discuss. As the world pivots on the verge of global recession, talk is frenetic and the cliches are flying, with the exception of perhaps one: "If it ain't broke, don't fix it." Asia is submerged in debt, Russia is melting down and even the United States is starting to look shaky. The system has faltered--many components are just plain broke--and somebody's got to come up with a fix. "The global economy simply cannot live with the kinds of vast and systematic disruptions that have occurred over the past year," says U.S. President Bill Clinton. "There is not a moment to waste." And of the scores of memorable similes set loose to describe the fragile world economy, one leaps out for its frequent invocation: Titanic.

But what if the Titanic's crew had managed to seal the bulkheads and fix the pumps? That notion became metaphorically interesting last week when Japan finally roused itself from a long slumber. Squabbling lawmakers passed a bill to recapitalize Japanese banks with taxpayer money. If all goes well, which is far from certain, the banks will start lending again instead of continuing to rewrite account books with erasers to hide bad loans and insolvency. The government had already promised a big dose of fiscal stimulus. Together, those moves could help Japan stem its decline and, after seven years of stagnation, maybe even grow again--a prospect that could mean salvation for other Asian economies. Under prodding from opposition parties, Washington and Finance Minister Kiichi Miyazawa, the world's second largest economy has earmarked $500 billion for its banks and $83 billion for stimulus, on top of a "Miyazawa Plan" that would provide $30 billion in aid for the rest of Asia. That adds up to well over a cool half-trillion.

Time for a quick reality check. Despite the impressive sums, there are doubts about Japan's plans, some justified, others made plausible by Tokyo's recent track record. "How many times have we seen a report that there's agreement in Japan on a banking plan and a few days later it falls apart?" asks Dan Tarullo, senior fellow at the U.S. Council on Foreign Relations and former assistant to President Clinton for international economics. "It's impossible to know if we're really on the brink of significant progress." Agrees Jim McGinnis, banking analyst at Dresdner Kleinwort Benson in Tokyo: "I don't think they have any intention of spending the money. They still believe that pigs will fly and that the economy will recover."

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