Another Asian Victory.

Stephan C[ddot{o}]etz-Richter

When George Soros recently announced his de facto retirement from the hedge-fund business, a sigh of relief could be heard around the world. Soros had first gained worldwide notoriety when he stared down the Bank of England in 1992, almost single-handedly forcing the British pound out of the European Monetary System.

But a historic parallel has been overlooked in all the reporting on the demise of Mr. Soros' famous hedge fund: On April 30, 1975, the last Americans left the then-South Vietnamese capital Saigon in a frantic hurry. Everybody has seen the famous pictures of people crowding on a Saigon roof to board a waiting helicopter. Twenty-five years later, the beginning of the end of Soros's hedge fund came when his deputy, Stanley Druckenmiller, quit his position.

The exit of this well-known hedge fund manager may come to be known as a symbol of defeat similar to the American with drawal from Vietnam a quarter century ago. It was strong proof that George Soros' investment strategy ultimately failed.

Druckenmiller's departure had been preceded by that of Julian Robertson, who announced in late March that he was closing his Tiger Fund group of hedge funds. They had shrunk from a high of $26 billion in assets to just over $6 billion. The big-name hedge funds, it seems, have waved the white flag and surrendered.

While largely symbolic, the "victory" of the Asian tiger states over the big U.S. hedge funds is nonetheless significant. After all, it was only a few years ago that U.S. hedge funds were flexing their muscles in the region. As the shock waves of the Asian financial crisis passed through Thailand, Hong Kong, South Korea, Singapore, Malaysia, and Indonesia, much of the region was left in a sharp recession. The hedge funds were among the first organizations to be blamed.

As Malaysia's Prime Minister, Dr. Mahathir Mohamad, complained at the time, "All these countries have spent 40 years trying to build up their economies and a moron like Soros comes along with a pot of money to speculate and ruins things." To many in Asia, the hedge funds were the architects of their disaster.

Of course, there is much debate about whether the hedge funds really were the primary culprits in the Asian financial crisis. But what matters is that they were widely perceived--and demonized--as the puppet-masters behind the crisis. Of course, this interpretation of events also provided a convenient scapegoat for governments in the region that wanted to deflect attention from their own policy mistakes.

The afflicted countries lost two years of economic development, but at least they have avoided the prolonged stagnation experienced by Latin America in the 1980s. Without trivializing the social and economic costs of the crisis, most of the Southeast Asian economies had already moved back to their pre-crisis GDP levels by the third quarter of 1999. According to the Asian Development Bank, the newly industrialized countries of Southeast Asia grew by an average of 7 percent in 1999, after their economies had contracted by 1.9 percent in 1998.

Despite this good news, at the height of the crisis many Asian contemporaries saw the hedge funds as the financial equivalent of the B-52s that in the past had laid waste to Cambodia and Vietnam. First, the threat of communism was met with a long war that the U.S. lost. Then, so went the conspiracy theory, the threat of an "Asian way" in economic development was met with a violent financial market reaction fueled by U.S. speculators.

Just as in the previous crisis, some countries in the region allied themselves with the U.S.--and a plucky few were ready to defy the superpower. In the new confrontation, Prime Minister Dr. Mahathir saw himself as almost a new Ho Chi Minh, rallying his people against the invaders from across the Pacific. Hedge fund operator George Soros took the place of General Westmoreland, the U.S. general in charge of the Vietnam War.

Of course, the hedge funds did not fail because of bad investments in Asia. They failed because their investment styles turned out to be too conservative for the roaring U.S. investment climate. But one might also say that the U.S. defeat in Vietnam was really as much a function of events taking place in the U.S. as of the actual war on the ground in Vietnam.

But before Asians revel prematurely in their victory over the U.S. hedge funds, they should heed a word of warning from the postwar history of Vietnam. The Vietnamese have discovered that they really do want the U.S. around. Nike, the U.S. producer of sporting goods, is the biggest private sector employer in Vietnam. After declaring victory, will the Asian Tigers discover that they really do prefer U.S.-style capitalism after all?

* Stephan G[ddot{o}]etz-Riehter is publisher of TheGlobalist.com.