Originally created 08/05/98

Governors fret over Asian crisis



MILWAUKEE -- Revenues are high. Unemployment is low. Surpluses are a happy reality in most state budgets. Yet the nation's governors are worried that Asia's financial crisis will choke their economies.

"When will it hit us?" Illinois Gov. Jim Edgar asked Tuesday.

His question was the focus of discussion on the final day of a National Governors' Association conference, as state executives explored a potential dark lining in their otherwise bright economic outlooks.

The day's keynote speaker, Deputy Treasury Secretary Lawrence Summers, said Asia's financial troubles are having "a very substantial impact" on all world economies.

"Make no mistake, containing these problems is crucial to our future," Summers said. "It is about safeguarding American jobs, safeguarding American savings and ultimately safeguarding our security."

Governors whose states depend on exports to Asia should be most alarmed, Summers said. And he urged them to lobby Congress on behalf of the International Monetary Fund, which tries to rescue struggling economies.

"Our ultimate and continuing prosperity is embedded in the ultimate and continuing prosperity of the world," Summers said.

He told Edgar, a Republican, and other governors that Asia's troubles can be contained with help from outside the region. "There is no way it needs to pose a threat to the basic momentum" of the American economy, Summers said.

With few exceptions, Democratic and Republican governors alike are custodians of strong economies. Budget surpluses in 47 states allow governors and lawmakers to approve modest tax cuts or new spending programs -- and often both.

Governors in 28 states are setting aside money in case the economy sours. In Michigan, Gov. Jim Engler, a Republican, has a $1 million "rainy day fund."

So why worry?

History shows that state revenue cushions can be wiped away within months; surpluses disappeared from many state budgets between 1990 and 1991, NGA records show.

And if Asian customers stop buying goods from American businesses, state budgets will be impacted, governors said.

"Michigan is the nation's No. 4 exporter, so we have to pay attention to what's happening globally," Engler said. Some Michigan businesses are already feeling the pinch, he added.

North Dakota's unemployment rate is only 2 percent and all economic indicators are strong, yet Republican Gov. Edward Schafer says his administration recently lowered its projection for economic growth from 4 percent to 2.8 percent.

"Our economy is dependent on agriculture and oil, both of which are suffering from a low-price syndrome," said Schafer, whose state sells about 40 percent of its wheat overseas.

Republican Gov. Arne Carlson of Minnesota said his state has a "dramatically stable" economy. Yet he predicted that U.S. economic data released in October will convince many Americans that the boom is slowing down.

"I believe it will be an issue in November's elections," he said.

Some governors said they will no longer underestimate the potential impact of Asia's woes.

"The session (Tuesday) was a little more sobering that we would have liked," said Republican Gov. Mike Huckabee of Arkansas. "It's another reminder that prosperity is not a permanent state."

The administration is seeking $18 billion to replenish IMF coffers depleted by the need to assemble more than $100 billion in rescue packages for troubled Asian countries.

House Republican leaders have delayed action until September because of disagreements between GOP critics of the IMF and pro-business lawmakers who support its efforts to save faltering world economies. Some House lawmakers want to amend the IMF measure to restrict funding for family planning programs overseas, a condition that would attract a veto from President Clinton.

Most governors said they support approval of IMF funding, but they were divided over how to break the impasse.

Blaming Clinton, Schafer of North Dakota said, "He needs to look at the value of the entire legislation" and approve it, even with the family planning item.

Democratic Gov. Mel Carnahan of Missouri, however, said that provision should not be tied to IMF funding.