U.S. turmoil churns up an ill wind worldwide

On the third floor of an office building tucked into one of this city's most fashionable shopping areas, a team of financial sentries stands watch.

Beneath clocks giving the time in London, New York and Seoul, they scan flickering computer screens, alert to any unusual events or market movements. To enter their cubicle-lined workspace, they must press their thumbs against an electronic pad that recognizes their fingerprints.

In 1997, a financial crisis roared out of southeast Asia and claimed South Korea's then-miracle economy as one of its highest-profile victims. In the aftermath, the South Korean government established this early warning center to guard against a repeat occurrence.

Now, with global markets yo-yoing in response to financial turmoil in the United States, the specialists at the Korean Center for International Finance are especially vigilant. Along with daily market tracking, economists here run a monthly computer simulation based on a classified list of 21 economic variables. The model rates the risk of a repeat crisis within the next year on a 1-to-5 scale, with 5 meaning red alert. Recipients of the center's reports include the presidential Blue House, the central bank and the South Korean Central Intelligence Agency.

"We run around the clock. … If a currency crisis happens without our warning, I am supposed to lose my job," says Chang Seok Oh, 48, the economist who heads the unusual center, only half-kidding.

Across Asia, people are watching the U.S. financial crisis the way coastal residents regard an approaching Category 5 hurricane. There's no question the storm on the horizon is dangerous and is headed this way. The only debate is over how much damage it'll do once it arrives and exactly what it will hit. "We are very concerned about the current situation. We are watching the U.S. financial markets every day," says Yook Dong-Han, director general of the Ministry of Finance's economic policy bureau.

The current crisis may have begun in early 2007 with mortgage excesses in the U.S. But it long since has demonstrated global reach: Icelandic banks, Spanish home sales, Chinese factories and stock markets from Milan to Bombay, all have been sideswiped by the runaway U.S. financial locomotive. Global growth is expected to downshift from an annual rate of 4.8% in the fourth quarter of 2007 to 3% during the same period this year, according to the International Monetary Fund.

The South Korean economy — the world's 13th largest — is tightly linked to global trade, so a prolonged U.S. recession would be certain to do significant damage. Under pressure from high oil prices and softening demand, the economy already is slowing to an annual growth rate of around 4%, down from 5% last year. Monthly job growth is slumping and household debt is rising sharply, though it remains nowhere near perilous U.S. levels.

In recent weeks, fears of a new crisis here soared as foreign investors fled Korean markets. The won has lost almost 29% of its value against the dollar in a year-long rout, while the benchmark Kospi stock index is down a similar amount since last October. "It makes me nervous," says Lee Si Su, 57, sitting with a friend on an outdoor plaza.

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