Speaking in Tokyo on Friday, Asian Development Bank president Haruhiko Kuroda said there was little chance that Asia could be struck by a 1997-style economic crunch. 'I'm reasonably confident that nothing like the Asian currency crisis 10 years ago would happen in the region,' he was reported as saying.
Mr Kuroda was trying to be reassuring. But the simple fact that he felt obliged to play down the possibility of a crisis is itself deeply worrying. And that worry is sharpened by the increasing number of analysts who believe he is wrong and that that is exactly the direction in which Asia is now heading: towards a 1997-type collapse of confidence.
After years of running vast trade surpluses and using the proceeds to accumulate huge pots of foreign exchange reserves, most East Asian governments have got used to thinking themselves impregnably defended against a currency collapse caused by a balance of payments crisis.
Until recently that confidence was largely justified. But with the doubling of oil prices from about US$70 to more than US$140 in the past 12 months, some countries in the region are beginning to look uncomfortably exposed. As the chart below shows, few parts of the world rely as intensively on plentiful supplies of cheap - and often imported - energy to keep their economies humming. Even with oil at US$100 a barrel, that wasn't much of a problem. Regional economies could still run sizeable current account surpluses. With oil at US$140, however, East Asian countries are suffering a severe case of trade shock. They have to produce and export that many more cars, DVD players and running shoes to pay for each barrel of oil they import. As demand in the developed world softens, that is likely to prove impossible.
Consider Korea, which must import all the oil it burns. According to Peter Redward, head of emerging Asia research at Barclays Capital, current price levels will be enough to tip Korea into a current account deficit of about US$20 billion this year compared with a surplus of US$6 billion for 2007.
At first glance, a deficit of US$20 billion does not look like much of a problem. After all, at the end of June, Korea boasted foreign exchange reserves of US$258 billion; enough to cover 12 years of such deficits. But Mr Redward points out that on top of that deficit Korea is likely to face US$20 billion of foreign direct investment outflows this year and an estimated US$40 billion of outflows from foreign portfolio investors who own about a third of the local stock market index. 'Suddenly, what look like very large reserves are not that big,' he says.