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Corn+Soybean Digest

Asian Demand Boom Delayed

Regarding Asia, it's best to be blunt. But Pro Farmer is not about to claim we've got the answers to questions like, "How deep will the economy fall into recession?" and "When will the economic bust turn into yet another boom in the Pacific Rim?" Instead, we'll offer the best up-to-date information we can.

The origin of the problems can be traced back to China's currency devaluation in 1994. The move was China's attempt to boost exports. The actual result was disrupted trade between Asian countries that put in motion a ripple effect that built to a tidal wave by the time it hit countries like South Korea, Indonesia, the Philippines and Malaysia.

Japan is the key player in the Asian situation. For years, this country was the powerful economic engine that pulled Asian neighbors along and basically showed less-developed economies how and where to compete in the global market. South Korea was the best student, rising to the 11th largest economy in the world by 1997.

Even Pro Farmer has compared the Asian situation to Mexico's economic turmoil earlier this decade. But there's a very distinct difference between the economic leadership of these regions. In Mexico, the International Monetary Fund (IMF) bailout plan worked - but only because leaders were willing to recognize the problems, accept the solution and put the plan into action.

In South Korea, during its December elections, the opposition candidate ran on the platform that, if elected, he would not abide by the IMF bailout plan that totaled nearly $57 billion. Realizing the opposition would likely win the election, the market factored in an extremely high level of economic instability.

After winning the election, the opposition candidate quickly changed his mind and decided to follow the IMF plan. That was the first sign of economic sanity shown by the new leader. Still, this was a dose of medicine that was reluctantly swallowed, keeping the markets on edge.

Malaysia, Indonesia and the Philippines have also been reluctant to accept and implement economic restructuring. As LaSalle Economics, Inc., president Vince Malanga wrote in his Dec. 5 commentary, "The longer Asian authorities dillydally, the more difficult it will be to restore the confidence of financial markets and thus lay the foundation for economic recovery."

"Money is not the answer," says U.S. Treasury Secretary Robert Rubin. "Sound policy is - though international support may be necessary to get through a difficult period. To implement a successful reform program requires countries to take ownership of the adjustment measures and to make a commitment to sustain them."

The Asian barrier to economic realism is strongest in Malaysia (which, in early January, had an economy in much better shape than South Korea's). The Malaysian prime minister has called depreciation of the country's currency (the ringgit) a plot "by the economic powers to bring Asian 'tiger' countries into line to accept their dictates."

Until that attitude is changed, the road to recovery will be the "Pacific Edge Highway."

Currency values are the single most important Asian economic measurement farmers must track. It is the factor that will trigger the return of traditional Asian feed grain and soybean purchases. Stock action may be a better barometer of overall economic stability, but currency depreciation is the factor driving key importing countries from the import arena. It's been a long-stated and well- documented goal of Asian consumers to "Westernize" their diets, including higher daily protein consumption (that means meat).

The currency crisis put the brakes on the transition period - for now. When the economic recovery begins, restocking supplies to maintain the diet improvement pace will be a top priority.

There's no doubt the $1 billion GSM export credit package awarded to South Korea on Dec. 22 will make it easier to buy U.S. grains, but most of the region is in need of assistance to maintain the demand pace.

But this isn't the situation in every Asian country. Relative stability in the Japanese yen kept U.S. corn prices at affordable levels.

Bottom line: The Asian demand boom for U.S. feed grains and soybeans is not dead - just delayed. "For how long?" is the billion-dollar question. We originally anticipated a short-term (less than 12-month) delay. However, as struggling Asian countries continue to fail to recognize the depth at which their economies have sunk, it's difficult to anticipate a quick, meaningful recovery in Asia.

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