Nervous in '98.

Violence. Death. Thievery. Poverty. Instability. High Anxiety. Its a world of troubles. And a world of opportunity. Especially this year.

Thanks to a series of interacting factors, 1998 is likely to be the year the global economic boom will dampen, international equity values will not appreciably recover, and foreign currencies will remain weak against the dollar. Although the result would not mean a major decline for the U.S. economy, U.S. economic growth rates would fall from 1997, along with exports, corporate profits, and equity prices.

From forces influencing regional growth to economic issues that cross borders, shifts affecting the global competitive environment vary widely. The East Asian states have proved an old truism already demonstrated by Japan: Allocating investment capital on the basis of non-efficiency criteria at the early stages of economic growth may generate rapid expansion for a number of years, but inevitably, incompetence, greed, nepotism, and corruption will surface. No economy can sustain nonmarket criteria indefinitely. The banking crises, the production over-capacity, the economic declines of so many Asian states are the results. Those crises will continue through the coming year, and the Asian states will not emerge from these dilemmas rapidly, nor painlessly; they will be in difficulty through 1998 and beyond.

The greatest challenge for East Asian states in 1998 will be to manage their slowdowns in a way that will prevent major political instability. A number will fail that challenge.

When the going gets rough, people tend to do what they've always done, but with greater intensity - getting up earlier, working later, and really applying themselves. The problem is that those tend to be the very things that got them into trouble in the first place, as evidenced by Japan, which has been more or less doing the same things since the fall in the Nikkei.

In Thailand, inadequate government regulation of the economy has weakened the government to the point where it is barely able to function. The country's state structure has always been relatively incompetent, and the government of Prime Minister Chuan Leekpai is bound to fall. The military will again play a dominant, albeit behind the scenes role, in its demise.

Indonesia is a state ripe for violence. The remarkable run of power of President Suharto - 30 years of 6 percent-plus annual economic growth - will come to an end with his death, and succession is bound to produce a crisis. His children are viewed as the country's principal thieves. The Chinese entrepreneurs who have done so much to drive the miracle growth are looked upon as exploiters. Barely a day passes without an attack by the Malay Muslims against the Chinese Christians. More turmoil is on the way.

In China, high unemployment, widespread poverty, bankrupt state-owned enterprises, plummeting foreign investment, and a banking system more overextended than any other in the world have all narrowed the options for the communist rulers. Economic and political liberalization are the solutions, but expect no dramatic initiatives for 1998. The Chinese leaders will do nothing that threatens the political monopoly of the Communist Party or the economic interests of the powerful. The Chinese fear turmoil. They may get it.

Having dithered for seven years, Japan's banking system and its economy are weaker than ever. Its world-class companies sustain export growth, while its own economy remains inefficient, overextended, and weak. The government is divided. Prime Minister Hashimoto appears to know what has to be done - deregulation and fiscal stimulus - but has no power base of his own. Instead, he must depend on the faction leaders within the badly split LDP, who would preserve their grip rather than institute reforms. As a result, Japan will continue to wallow.

Of course, East Asia is not the only game in town. Many other states and issues will also play a role in the well-being of the global economy, including:

Russia. President Yeltsin, who headed my list as the most likely world leader to die in 1997, is still with us. But Moscow is in a state of high anxiety and the long knives have been drawn. Would-be successors to the president have launched national election campaigns. Moscow Mayor Yuri Luzhkov and ex-General Alexander Lebed are running hard and discrediting the entire "Party of Power," as the ruling circles are called. Even worse, the "Party of Power" has fallen apart from within, with struggles between Chernomyrdin, Chubais, Nemtsov, Berezovsky, and the rest remaining intense and vicious. The reform process will suffer, along with political stability, spawning anxiety among Western investors.

EMU. The euro is now a sure bet for January 1, 1999. Watch for the identification of the first round members in March 1998 and the fixing of exchange rates between European currencies in May 1998, meant to eliminate speculation before the launch of the new currency. On top of the billions that will be spent to address the Year 2000 problem, European businesses and governments will be forced to allocate billions of dollars to adjust their systems to run two different currencies - their own national currencies and the euro - until the phase out of their national currencies, scheduled for 2002. As a result, European growth rates will slow.

Middle East Peace Process. Having stimulated the most extreme demands of the members of his coalition in order to strengthen his own political position, Prime Minister Netanyahu is now burdened with his coalition partners' belief that they actually are entitled to realize their extremist demands. The "Black Hats" in his government would like an Israel free of Conservative and Reform Jews and a West Bank and Gaza free of Palestinians. Despite U.S. pressures, the Prime Minister will be unable to change his coalition's policies, ensuring Israel's indefinite occupation of the territories that should be the independent state of Palestine. Nor will Israel look anything like the pluralist and tolerant country that has been the dream of American Jews.

Iraq. Saddam Hussein's defiance of the UN and the U.S. was a brilliant strategic move - a rational act by a high stakes rational actor. He knew that despite overwhelming U.S. military superiority, the U.S. had no effective military option. Had the U.S. used force against his military bases, Hussein would have continued to refuse the return of U.S. inspectors, further embarrassing the U.S. Sending in U.S. troops - a move that would have been rejected by the American people - would have then been President Clinton's only alternative. Were the U.S. to use punishing force against civilian targets, such as power plants, the coalition of the permanent members of the UN Security Council would have surely cracked, with France and Russia refusing to renew sanctions. Confident that the military threat was slight, Saddam was able to accomplish what he needed to do when the UN inspectors were out of the country - hide chemical and biological weapons or arm SCUD missiles. In the meantime, sympathy stirred for the Iraqi people, shortening the time before the sanctions are lifted.

Iran. In Teheran these days, people refer to their new president as "President Diana," after Lady Diana. They say he visits hospitals, schools, and orphanages, but has no power. In fact, the Iranian constitution gives the president only limited power. The Supreme Leader, the successor to Ayatollah Khomeini, is far more powerful. Therefore, the ability of President Khatami to break out of Iran's economic, political, and diplomatic policies is limited. His offer of cultural exchanges rather than official contacts with the U.S. demonstrates this. Only halting progress will be made towards a breakthrough with the US. Instead, the French and Russian energy companies there will develop Iran's oil and gas and the U.S. boycott of Iran will continue to weaken. But in the interim, it will punish U.S. firms but only slightly damage the regime of the clerics.

Both Iraq and Iran are developing weapons of mass destruction. Both would build nuclear weapons, if not for U.S. sanctions that slow their ability to acquire crucial components. Both already appear to possess chemical and biological weapons. It seems inevitable that we will live in a world in which proliferation is a reality. Only the threat of overwhelming retaliation and destruction is likely to prevent the use of these weapons of mass destruction.

Oil. Oil prices will continue to fall over the course of 1998. The Saudis got OPEC to raise its production ceiling to allow them an effective 10 percent increase in production along with Kuwait and the UAE. The target appears to have been Venezuela, which has been cheating on its quota by as much as 1 million barrels per day. But pouring more oil onto the market will not intimidate Venezuela. Iraq also has the capacity to produce an additional 2 million barrels per day. Watch for the UN to raise the volume of oil that Iraq is able to sell for humanitarian purposes. Meanwhile, global oil demand will be soft in 1998, thanks to El Nino, with rising temperatures bringing reduced oil demand. Expect oil prices to subside by $3 to $5 per barrel.

Latin America. Many Latin American states should be indirect beneficiaries of the Asian slowdown and the coming Asian political instability. The commitment to democracy and market economics is firm in a number of Latin American countries - Chile and Argentina foremost among them. Brazil has demonstrated its commitment to continuing market reforms. Mexico's ruling PRI continues to disintegrate as democracy spreads in Mexico. The ability of Latin American states to get their public finances under control and to bolster their private sectors suggests that, increasingly, global investment attention will switch from Southeast Asia to Latin America.

Africa. For the first time in 25 years, sub-Saharan Africa, as a whole, will have economic growth higher than population growth. Some five to seven African countries will actually enjoy robust economic growth, and U.S. firms will begin to look to Africa for investment opportunities.

The effects on the U.S. of these anxious developments will be substantial, but not decisive. U.S. exports will decline while imports boom. The trade deficit will grow. U.S. growth rates will slow. The American economy will ride out the Asian turmoil, continuing its transformation to a high human capital, high physical capital, and high technology marvel.

In short, we will all be nervous in 1998. Uncertainty will be widespread. And the greatest uncertainty will center around the question of whether Southeast Asia in 1997 is analogous to Mexico in 1994-95 or to Mexico in its debt crisis of 1982. I am betting that the more apt analogy is Mexico after its 1982 debt crisis. The 1980s were a lost decade for all of Latin America - as the coming years are likely to be in Southeast Asia.

Marvin Zonis is a professor at the Graduate School of Business at the University of Chicago. He is the editor of International Political Economy and a principal of Marvin Zonis & Associates, an international consulting firm.