TOKYO — It's a measure of the rising frustration among some Asian governments that they have begun fighting their economic crisis with a strategy that hardly anybody in the world thinks will work: using public funds to buy stocks in a bid to shore up their plunging markets.
In pitting government bureaucrats against professional traders, the practice is liable to deplete vital national assets, undermine legitimate investors and even encourage dirty dealing across the region, critics say.
"Once governments get involved, there's always a danger of corruption, especially if the government's role is not clear," said Connie Leung, senior Asia economist with Lehman Bros. "Also, if they're manipulating the market, investors may turn away since they can't assess the fair market value."
Last week, the Hong Kong Monetary Authority broadly intervened in the territory's equity and futures markets as part of its battle to "punish speculators" and safeguard the link--or peg--between its currency and the U.S. dollar.
Malaysia then got into the act when its mercurial prime minister, Mahathir Mohamad, announced Thursday that his nation also was considering the use of government funds to prop up Malaysian shares, an echo of past threats by Malaysia and Taiwan.
These steps are being driven by Asia's deep, yearlong economic crisis. Japan, meanwhile, has spent huge sums in the Tokyo stock market the past few years to shore up Japanese bank balance sheets just before March 31, the end of the fiscal year.
Taken together, these cases signal a far greater willingness by some Asian governments to actively intervene in an area of the economy that would be considered off limits in the United States and many Western countries.
In addition to the urgency surrounding the crisis, analysts attribute this to a greater acceptance among some Asian nations of government managing the economy. In the United States, there is neither a mechanism for public funds to be diverted into stocks nor political sentiment to allow it.
Proponents of intervention--or "price-keeping operations," as the Japanese call it--concede that it's not an ideal solution but say in some cases the end justifies the means.
"PKO is a necessary evil in order to maintain Japan's financial system" and prevent a wave of bank failures and related social problems, independent Japanese economist Shigeo Watanabe said. "[Americans] must think PKO is a strange practice, but they cannot criticize Japan for doing so," he added. "Because if the Japanese economy collapses, they will be hit too."
