People keep asking whether the economic problems in Asia matter to U.S. farmers and agribusiness. The growth in Asian markets for U.S. agricultural products is often cited as the reason for the growth in U.S. agricultural exports during the mid 1990s. The expected continued expansion of those markets is identified as the source of future gains for U.S. agricultural exports. Will the economic problems and disarray in that region of the world have negative impacts on U.S. agricultural exports this year and in the future?

The short answer is “yes.” The economic chaos and deflation in Asia will adversely affect the U.S. agricultural export performance. Farmers’ concerns are justified. The adverse effects will vary greatly by commodity, with high-value-added agricultural product sales more adversely affected than bulk commodity sales. Exports of feedstuffs will be hurt more than exports of wheat. How badly U.S. agricultural exports will be affected and for how long cannot be determined at this stage. That depends upon how well nations in Asia face and deal with their problems.

The extent of the economic problems varies by country. Thailand, Indonesia, Korea, and Malaysia are the most seriously affected. Singapore, the Philippines, and Hong Kong have also experienced significant troubles. Japan is less adversely affected at this point, though that nation has experienced little eco-nomic growth throughout the 1990s.

For most nations in the region, the origin of the problems lies in their banking and financial sectors. Banking and financial practices which contributed to the rapid growth of recent years also created the conditions which led to the collapse. Loans were made, not on the basis of profitability of an investment, but rather on the connections of the individual or for political gain. This resulted in a massive misallocation of capital, excess capacity, large volumes of non-performing assets for banks and securities firms, and losses for manufacturing enterprises. Rather than allow banks and security firms to go bankrupt, more money was provided to cover the non-performing loans. By spring 1997, it was clear that the financial structures of Thailand, Indonesia, Malaysia, the Philippines, Singapore, Korea, and Japan were weak. The issue was when would the structures begin to collapse and how strong would be the decline.

The disclosure in the fall of the inability of several large firms and banks to cover their obligations and the subsequent closure of some banks and brokerage houses triggered the collapse. The immediate response was the sharp depreciation of these nations’ currencies on world markets as well as severe drops in their stock markets as domestic and foreign investors tried to save the money invested in these economies. From January 14, 1997 to January 14, 1998 the Indonesian currency fell by 67 percent, and the Korean currency fell by 49 percent. Incomes have fallen and so have consumer purchases. Purchases of foreign goods have been even more sharply curtailed. As of mid-January, reports indicate that U.S. agricultural exports have slowed as these nations are unable to make additional purchases or have canceled earlier commitments. In some cases, like Indonesia, transactions must be paid in full in cash with hard currencies.

These nations have been large and growing importers of U.S. agricultural exports. During 1996, Southeast Asia plus Japan and Korea purchased nearly 19 billion dollars worth of U.S. agricultural exports, or over 30 percent of our agricultural exports. Since around one-quarter of farm income comes from exports, purchases by these nations represent 8 percent of U.S. farm income. The importance of these markets to U.S. farmers and agribusiness varies by commodity. In the case of meats, fruits, and vegetables, Asian nations are critical because U.S. exports of these products are concentrated in those nations. Asian nations are also important buyers of U.S. feedstuffs, like oilseeds and feed grains, and rice. Since U.S. wheat exports are more geographically dispersed, exports of that commodity will be less severely affected.

To reduce the adverse effects of the economic slow down in Asian economies, the United States and the international community have taken several steps to assist Thailand, Indonesia, and Korea. International agencies, like the International Monetary Fund, have pledged aid in excess of 100 billion dollars. The intention of this aid is to isolate the economic damage to the Asian nations while providing the funds necessary for stabilizing and restoring these economies. The United States Department of Agri-culture has provided 1 billion dollars in credit guarantees to Korea to finance purchases of U.S. agricultural goods. Other nations in the region have also received credit guarantees. Canada and Australia have provided financing for agricultural trade as well. The loans from the international community are linked to domestic banking and economic reforms such as policy liberalization. Such reforms are intended to prevent the conditions which led to the crisis in the first place. Malaysia has indicated that it will not accept outside help. Japan has proposed a short-term stimulus package for its economy.

The extent to which the Asian economic problems will affect U.S. agriculture and the duration of the effects depend on a number of fac-tors. A reduction in the fiscal year 1997/98 U.S. agricultural export forecast of 58.5 billion dollars is expected, and exports for the next few years will likely be slower than otherwise would have been the case. A reasonable forecast at this point is that U.S. agricultural exports will be 0.5 to 1.5 billion dollars lower than if the problems had not occurred. How quickly Asian political leaders come to grips with the economic problems is the major factor determining the severity and length of the economic effects. If Asian leaders recognize and deal with the problems in a direct manner, the adverse effects will be milder and of a shorter duration. Delay in dealing with the problems risks a longer period of stagnation and greater risk of infecting other nations. To this point there has been a tendency to blame outsiders, like currency speculators, for the problems rather than recognizing that the crisis is home grown. The financial assistance provided by the United States, other nations, and the international community is valuable in softening the impacts and pre-venting them from spilling over to other nations.

In the longer run the fundamental conditions of high rates of saving and an educated work force in these nations support economic growth, and these nations should return to positive economic growth and upgrading diets. This will be positive for U.S. agricultural exports, especially products like meats, fruits, and vegetables. However, it is also unlikely that these nations will resume the extremely rapid eco-nomic growth seen over the last 15 years, because some of that growth was linked to using unsound financial practices. It is more likely that they will emerge from the present crisis with strong, but more sustain-able rates of economic growth. Agri-cultural exports by the United States might not see the spectacular rises of the past, but will benefit from more moderate, but sustainable, growth.

Concern is justified, because the economic problems of these nations, which are critical to U.S. agricultural exports, are negatively affecting U.S. agriculture. The extent of the problems and how long the adverse effects will be felt is unknown. Much depends on decisions taken by Asian leaders. The support offered by the United States and the international community, while costly, is critical in dampening the spread of the negative impacts to other economies.