"STOCKS SOAR ON OPTIMISM OVER ASIA," announced a page-one headline in last week's Washington Post. Anyone would think the Asian crisis was all but over, and the U.S. economy safely set to grow at 2-3 percent this year, and the stock market primed to whip past 10,000. . . . Well, don't bet the ranch on it yet.

Actually, an eerie silence hangs over Washington regarding Asia. Officials, including those at Robert Rubin's Treasury, know that no econometric model can fully predict the "negative dynamic" that may be triggered by the Asian meltdown. The great unknown is the effect on global confidence as the billiard ball of trouble ricochets through the international system. One particular unspoken fear is financial instability in Russia and perhaps Brazil. Meanwhile, the signs in the United States are not as reassuring as they appear. The so-called U.S. Purchasing Managers Survey -- the compendium of early-warning data that Federal Reserve chairman Alan Greenspan loves so much -- shows a peak in confidence last August and a fairly continuous slide since. Washington may be enjoying an artificial calm, with the full effects of the Asian turmoil just over the horizon.

As a matter of common sense, we should assume the worst. Valued in terms of the U.S. dollar, Asia's total GDP is roughly half today what it was six months ago when the crisis hit the front pages. Most of the companies in the affected countries are carrying debts far larger than they can ever repay.

Take Indonesia. Its currency is worth roughly one-sixth of its value against the dollar since last June, and half since the first IMF rescue plan was introduced. Paying debts under these conditions is next to impossible.

True, IMF officials are still holding discussions with the Indonesians, who respond with all the suitable assurances. The reality, however, is that Indonesia, fourth most populous country in the world, is being written off by the international financial community. Many experts half expect a military takeover, most likely under the cover of ending the inevitable violence against monied Chinese residents. Is anyone surprised that the Indonesians promise the IMF virtually everything but deliver very little? Clearly, in any debt-restructuring process, the advantage goes to debtors who come to the table with cash. So the Indonesians are hanging on to their dough.

It would be comforting to think that Indonesia is a special case, with the rest of Asia quickly coming back. Again, don't bet on it. Perhaps the primary reason the Asian economies grew so robustly was the high level of capital investment, more than half of it from overseas. That funding has all but vanished.

Even in Korea, whose strategic importance wins it the attention of the IMF, the U.S. Treasury, and the Japanese, the outlook is murky. Whether the labor unions will accept the restructuring plan put forward by the IMF and the banks remains a major question. Indeed, simply to cajole the American banks into rolling over their Korean debt, U.S. bank regulators have been forced to relax their standards. But the big story involves the German banks, major holders of Korean debt and, more significantly, of huge equity stakes in the giant failed Korean merchant banks. The German banks for technical reasons probably cannot participate in an IMF bailout scheme that includes Korean taxpayer guarantees. They'll be big losers, which is bad news for the already soggy European economy. With Tokyo still not committing to any significant further fiscal stimulus even as its economy plummets, Uncle Sam is more than ever forced into the role of global locomotive.

Notice, too, that U.S. officials are silent about China. That's because China is in the midst of a policy war: the sophisticated financial elite (officials who understand the futility of currency devaluation and who talk regularly to the international community) versus the domestic politicians (who have to deal with the negative fallout from the many failed state enterprises in the north and thus favor an immediate devaluation). How this will be resolved is uncertain, but the signs coming out of China are not good. According to senior Taiwan representatives, the Chinese are desperate for capital, which makes a devaluation of the currency (and thus adjustment of the Hong Kong peg) a real possibility. And make no mistake: That development would be catastrophic for Asia.

To be sure, some Asian stock markets have rallied recently. But these are extraordinarily thin markets, rising from a basement many stories below the street. Note too that if a market drops 50 percent, as Asia's have done, and then rallies 50 percent, it has still lost 25 percent of its value -- which is why a quick Asian comeback is unlikely.

Washington remains calm and confident, oblivious to the fact that the American economy often looks strongest just before a slide. At the beginning of 1989, for example, virtually the entire Washington policy community saw a big economic surge ahead. The January and February employment data that year were explosively strong. The Fed sensed it had no choice but to raise short- term interest rates. In retrospect, it is clear that policymakers managed to act at the precise moment the economy was peaking. The Fed, looking a bit awkward, was easing by June.

Today, a lot of the same policy wizards are predicting 3 percent growth for 1998 and see the United States as largely insulated from Asia. Let's hope they're right.

David M. Smick is the founder of Johnson Smick International, which advises global financial institutions, and editor/publisher of the International Economy magazine.

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