Positive gloss fails to dispel fears over Asian economy

WORLD leaders last night pledged to conquer the Asian crisis - but could not dispel two fears: that Japan is not doing enough to help restore the region's economic health, and that the crisis may destroy some countries' faith in the trade and market liberalisation touted as the means to solve it.

At the end of the first day of their second Asia-Europe summit, the 10 Asian and 15 European countries represented vowed that confidence and stability would be restored, on the basis of reform programmes laid down by the International Monetary Fund and World Bank.

They promised to resist protectionism and continue to deregulate and open up their internal markets.

For the first time, too, they stressed the need to help the poor.

Their statement underlined the "social aspects of the current financial difficulties", and urged countries to "protect social expenditures" and preserve a safety net to help the poor. As one European foreign minister said: "This is very European stuff. At last, we're bringing social thinking into the equation."

At one level the concern reflects the unrest starting to surface in the region as recession bites, especially in Indonesia, which has seen riots and thousands of illegal emigrants seeking better conditions in Malaysia and Singapore.

But the EU wants to stop the crisis destroying the faith of less advanced countries in the virtues of deregulation and liberalisation.

As Chuan Leekpai, the Thai Prime Minister, said, the financial turmoil "could put into question the value of an open economy".

Developing countries, he warned in a thinly coded appeal to the IMF not to impose over-tough terms for its rescues, were less prepared to handle the challenges of liberalisation.

It was vital they not be discouraged by what had happened in Asia, or use it as an excuse to close their economies to the outside world.

Both Tony Blair and Ryutaro Hashimoto, the Japanese Prime Minister, used their opening speeches yesterday to promise that the two giant trading blocs would be partners, not rivals. Europe was not a "fairweather friend" who turned away at the first hint of trouble, Mr Blair insisted, after criticism from Japan and elsewhere that the EU was not pulling its weight in helping Asia.

Mr Hashimoto declared that "the worst has come and gone", adding "we are now seeing new steps forward" - a reference to the improving financial picture in South Korea, Thailand and Malaysia, if not Indonesia, which will need a $3bn World Bank aid package, quite apart from the $43bn bail- out now apparently close to being agreed with the International Monetary Fund.

The Japanese Prime Minister further insisted that, with the $124bn economic stimulus package tabled last month, his country was playing its part in rescuing Asia.

Not only was Japan the main source of economic support for the region, but it would "take the necessary measures" at home.

However, doubts about Japan's health have only been reinforced by dismal new economic indicators and familiar worries that promised measures would ever make it to the statute book. Pointedly, the British government spokesman yesterday declined to say that, in the UK view, Japan was doing enough.