Negotiations to create a Free Trade Area of the Americas could still be launched but nothing serious will happen until the United States obtains fast track authority and Mercosur decides to extend its liberalization beyond the grouping itself. The good news is that the Asian adjustment programs all include important further liberalization of their import and investment regimes. The bicycle of liberalization is still moving ahead but could easily stall in the face of the Asian crisis. Concerns about deflation have in fact become widespread. Hence monetary policy is likely to be eased, perhaps substantially, around the world in 1998 and possible beyond.
Japan needs to do so for domestic reasons.
The Asian crisis countries need to do so as soon as their exchange rates level off. Europe needs to do so to accelerate growth. A severe slowdown in global growth, as suggested above, will accelerate these prospects. There could be a substantial shift in global monetary conditions over the next year or so. The next major disturbance to the world economy, once the world has safely surmounted the current Asian crisis, is likely to be another sharp plunge in the exchange rate of the dollar.