CALLUM Henderson's newly published tome marks the start of what could become a deluge of books penned to explain the Asian financial crisis. Hong Kong seems particularly adept at spawning financial writers, and it does seem a coincidence the region's economic journey has been bracketed by two books with echoing titles: Jim Rohwer's Asia Rising: The Economic Miracle in East and Southeast Asia and Why the West Will Profit (Touchstone Books, US$14) and, now, Mr Henderson's Asia Falling? Making Sense of the Asian Currency Crisis and Its Aftermath (McGraw-Hill, $19.95 hard, or $12.95 soft). Mr Henderson, a 33-year-old currency analyst, has the advantage of being the first to bat on this side of the fence, of having access to the inside story and of writing with welcome clarity. He wisely has taken the precaution of tacking a question mark to his title. Mr Henderson held down a full-time job at research house Standard and Poor's MMS while writing into the wee hours of the morning. Hardly surprising, then, that he begins with an exhausted warning to future authors about book writing being an all-encompassing, soul-destroying task. In Asia Falling?, Mr Henderson argues the long-term health of Asia's economies possibly has been improved by the forcible snapping of dollar pegs around the region. He says Asia is at a crossroads where it could liberalise its markets or shut its doors, wasting years of progress. 'Fixed, or pegged, exchange-rate regimes, unless flexible enough to allow for the variations in the economic cycle, and unless backed by strong economic fundamentals, inevitably will fail. It may happen sooner, it may happen later, but it will happen eventually,' he writes. The 'virility' Asian countries enjoyed as a result of stunning economic growth rates and strong currencies eclipsed other uncomfortable factors. Asian governments and central banks ignored warning signals given off by the Group of Seven accord of April 1995, which reversed the US dollar's fall and eventually led it to rise more than 50 per cent against the Japanese yen. 'Asian countries should have let their currencies weaken to reflect this new set of international-market dynamics and exceptions,' he writes. But in the heady days of what Mr Henderson calls emerging-market fever, returns were fabulously large - the Hang Seng Index went from 400 in 1974 to 12,000 in 1994; South Korea's stock-market index rose 1,604 per cent from 1975 to November 1994; Malaysia's jumped by 1,733 per cent; and Thailand's by 1,711 per cent. Hardly any attention was paid to current-account balances and other warning signals, setting up the region for its recent stumble. Fluctuations in the dollar-yen cross rate had a stunning impact on Asian economies, and Mr Henderson devotes a chapter to that development. Weak domestic demand and Asian currency over-appreciation relative to deteriorating economic fundamentals caused an explosion of Japan's trade surplus with Asian countries. 'While dollar exchange rates stayed relatively stable against Asian currencies due to the pegged exchange-rate systems, the yen fell gradually against the Asian currencies from April 1995 to early 1997,' he writes. Asia Falling? gives Japan's role in the region the significance it deserves, a significance sometimes understated in media coverage. This particularly is true given Japanese capital and technology were the building blocks for the rise of Asia. 'More than any other country, even than the US, Japan was exposed to Asia, both in terms of commercial bank lending and foreign direct investment,' he says. Mr Henderson lays the blame for Asia's mess at the feet of regional governments, and is both convincing and sympathetic in his arguments. Interviews with senior Asian officials, currency traders and others who make market mechanisms move (many who spoke off the record) give the book an insider's authenticity, and a certain racy feel. Certainly, it holds a reader's interest and covers all the main points, including looking ahead to another possible danger: whether the mainland will remain unscathed or become the next crisis. As a former journalist - Mr Henderson worked with the wire service AFX for years before becoming a currency analyst - the author has an eye for graphic metaphors. Morbidly enjoyable is his description of speculators in Thailand as dorsal fins slicing through water at the smell of an injured animal. You get the picture. Interesting, too, are the chapters recapping the Mexican crisis, suggesting Asian governments should have paid more attention to that, as it reaffirmed the need for sound macro-economic policies. Unfortunately, because of the timing of the book's publication, Mr Henderson only touches on the International Monetary Fund's rescue packages and the lessons to be learned from its handling of different crises. As he puts it, closing banks is a delicate issue requiring much care and reassurance over the health of the overall banking system. 'In terms of trying not only to stabilise, but also to calm the situation in Indonesia, in particular, the first six months of the rescue attempt by the IMF were a disaster,' he says in conclusion. Perhaps that should be the topic of Mr Henderson's next book.
