Asia Market Crisis Tests US Security Strategy

For decades, an American security blanket made Asia safe for business.

With 100,000 troops and fleets of aircraft and warships, the US military presence guarded commercial sea lanes, suppressed an arms race, boosted anticommunist allies, and generally promoted tranquility in a region with deep rifts between nations.

But a rude wake-up call for Asian-style capitalism has made that security blanket look, well, less secure.

Now that some of Asia's biggest economies are in free fall and others badly wobbling, the US strategy may be put to the test. US officials are now watching for signs that corporate collapses and currency crashes may spark social or political unrest from Indonesia to the Korean peninsula.

"I don't think we've yet seen or felt the political fallout from all of this," warns one US official. "Most people are still too stunned and hypnotized by the immediate economic problems."

For Americans, the stakes are high. Trade with the region has become a key component of the thriving United States economy, with commerce totaling $982.6 billion in 1996, surpassing that with the European Union.

Some experts see the undoing of Asia's brand of government-guided, corruption-rife capitalism as the equivalent of communism's demise in Eastern Europe. The impacts, they say, may be worse because Asia has no NATO pact to provide confidence and a collective means of containing strife.

"People [in some Asian countries] have lost half their savings," says Robert Manning, an analyst at the Council on Foreign Relations here. "That's a pretty predictable recipe for some serious turmoil."

Since the end of the cold war, US security policy has been to promote economic growth as a bulwark against Asia returning to the rivalries, insurgencies, and social unrest that had long wracked the region.

Underpinning the strategy are US forces, whose presence keeps in check the most serious threats to stability - a North Korean onslaught on South Korea or a Chinese bid to reclaim Taiwan by force - that could hurt American interests and impede trade and investment flows.

Washington has been looking to bolster its approach by broadening defense cooperation with Asian states. It expanded a security alliance with Japan in 1997, it is seeking better ties with the Chinese army, and it wants closer relations with other militaries.

These were to be the major themes of a 12-day swing through Asia that Defense Secretary William Cohen began Monday. But it took on new importance as the economic crises deepened. He is now using his stops in Indonesia, Singapore, Thailand, Japan, and South Korea to reaffirm the US commitment to Asian stability.

"There is a sense right now of vulnerability, of uncertainty" in many Asian states, "and they are looking to the United States for our determination to remain involved," says a senior Pentagon official.

Mr. Cohen is also consulting with his hosts on adjusting the terms of deals with US arms firms threatened by currency devaluations. Thailand wants to delay a $392.1 million purchase of F-18 jets from Boeing Company, and South Korea is seeking to delay or cancel a $1.6 billion deal for US-made airborne surveillance planes.

Cohen is also adding his voice to calls for the region's leaders to carry out reforms required by International Monetary Fund bailout plans. Ironically, those reforms are among the potential sources of instability.

Some US officials and independent experts worry that old tensions between states could revive as their leaders look to deflect domestic ire over layoffs and other consequences the reforms are expected to produce.

"You have a major social revolution happening in Asia as a result of international intervention," says James Lilley, a former US ambassador to China. "You are fundamentally tinkering with the power structures."

THIS is especially true in Indonesia, where military-backed President Suharto is being challenged over corruption and the mishandling of the economy of the world's fourth most populous country.

There are fears that political turmoil could impinge on Indonesia's neighbors, especially China, if Indonesians take out their anger on their wealthy ethnic Chinese minority, as has happened before.

Some experts also worry about the effect an economic tsunami might have on Japan's ability to meet its defense commitments to the US. A 1995 accord requires Tokyo to contribute $5 billion a year until 2001 in direct and indirect costs for the upkeep of 47,000 US troops based in Japan, where resentment of the force is already high.

Washington's key concern, however, is with the Korean peninsula.

There are worries that Pyongyang, beset by its own economic disaster, could try to exploit the crisis in South Korea, where 37,000 US troops are posted to deter an assault by the North.

With South Korean President-elect Kim Dae Jung pledging to shut bankrupt firms under a $57 billion IMF rescue agreement, the prospect of massive layoffs has triggered threats of labor strife.

Some experts say Pyongyang could exacerbate unrest through its ties to South Korean unions and radical student groups. Widespread chaos could offer a tempting opportunity for a North Korean military assault.

The financial crisis could also raise problems for a 1994 US-brokered deal to halt North Korea's nuclear-weapons program. Pyongyang agreed to halt the program and dismantle two aging nuclear reactors. In return, it is to receive two new reactors from which weapons-grade material is hard to extract.

Seoul is to finance most of the $5.1 billion project, which broke ground last summer. But the won's devaluation raises doubts about whether the South Korean Assembly will OK $250 million in initial construction costs later this year.

Devaluation of the won could also hurt South Korea's ability to provide food aid to North Korea, where crop failures and floods have created massive shortages.