Asia woes not
all bad for state,
experts say

A Fed governor says crisis
has kept inflation low

By Russ Lynch
Star-Bulletin

The dark cloud of Asia's economic crisis may hang around for a while longer but it has had a silver lining of sorts for the United States and, in turn, Hawaii's tourism industry, economic experts told a Waikiki audience.

At yesterday's "Fed Focus" conference at the Hilton Hawaiian Village, experts stressed something that local businesses are painfully aware of: Hawaii's economic fate is bound to developments in Asia. But speakers also said that the bad news in Asia has not been all that bad for the United States and a booming U.S. economy will help lessen the Asian meltdown's effect on Hawaii tourism.

The United States reasonably could have expected a lift in inflation as its economy grew, said Robert T. Parry, president and chief executive of the Federal Reserve Bank of San Francisco. Instead, Asia's problems have held U.S. prices down and the rising value of the dollar in Asia has also helped keep a lid on U.S. inflation, Parry told the conference organized for the Fed by the Chamber of Commerce of Hawaii, the Hawaii Business Roundtable and the Hawaii Council on Economic Education.

Parry runs the central bank for the 12th district, consisting of the nine Western states plus Guam, the Northern Mariana and American Samoa.

He said his district, which has nearly one-fifth of the U.S. population and jobs and about one-sixth of the total U.S. banking assets, is more affected by the troubles in Asia than the rest of the country.

"We're about twice as dependent on trade as the nation as a whole," he said.

The strength of the dollar against Asian currencies and the corresponding difficulty the Asian countries have in paying for U.S. goods doesn't help the United States and hurts Hawaii tourism, he said.

"But it doesn't mean we're going to get derailed."

He noted that the mainland boom is already bringing investment into Hawaii and boosting home sales here. And, he said, although the Asian crisis turned out to be more serious than expected, the effect on the U.S. economy has not been as serious as originally thought.

Parry predicted that Hawaii will pull out of its slump but it will take time because it is dependent on what happens in Asia.

Asia depends on Japan and Japan has yet to pull out of its financial trouble, he said. "It would be difficult to have a return to good economic growth in Asia without a turning of the corner in Japan," Parry said.

David McClain, an economics professor at the University of Hawaii, echoed Parry's bad news/good news opinion. The bad news in Hawaii includes a fall-off in tourism, low hotel occupancy, a drop in construction work, reduction in the military forces based in the islands and the loss of jobs, McClain said.

But there are positive signs, he said, such as stronger tax revenues than expected, inflation running close to zero, personal incomes on the rise and immigration of skilled workers from Asia.

Still, it will take several years for Asian economies to turn around and Hawaii will be affected by that, McClain said.

Meanwhile, American consumers are "a little traumatized" by recent downslides in the stock market, he said. Those factors create negative feelings for tourism.

The bottom line was that neither speaker predicted an upturn in Hawaii in the near future but both said Hawaii will survive the current crisis and that positive signs have emerged.