Whatever happens next, the Great Asian Slump is already one for the record books. Never in the course of economic events--not even in the early years of the Depression--has so large a part of the world economy experienced so devastating a fall from grace. Latin America, once the world champion when it came to economic instability, has lost the title. Compared with Asia's debacle, the tequila crisis of 1995 now looks like a minor wobble; and the once terrifying debt crisis of the 1980s, a positively placid affair.

Moreover, Asia is nowhere near having hit bottom: While the region's currencies seem to have stopped plunging for the moment, its real economies are getting weaker, not stronger. Hong Kong just announced that its economy shrank 2.8% in the first quarter of 1998,its worst recession since World War II. Economists predict that Indonesia's GDP will fall an astonishing 15.1% this year. Compare that with America's worst postwar recession 1982--when the economy shrank 2.1%. And it turns out that Japan's bad bank debt is not $550 billion, as previously reported, but a whopping $1 trillion (see following story). The repercussions from all this bad news are just now being felt, not the least of which is a case of the jitters for the U.S. stock markets.

There have already been many recriminations over whom to blame for this catastrophe. Was it punishment for Asian sins or the nefarious work of evil speculators? Did the IMF make the best of a bad situation or did it simply pour fuel on the fire? There is some point to these arguments: Figuring out who lost Asia may help the world keep this crisis, or the next one, from spreading. But the really important question is, Now what? Do we--meaning the IMF, the U.S. Treasury, and the afflicted countries--stick with Plan A, the strategy we've been following so far? Or is it time to try Plan B? And what is Plan B, anyway?

The short answer is that it is time to think seriously about Plan B. And Plan B is fairly obvious--except that nobody, not even Plan A's harshest critics, has been willing to talk about it openly. But before we get to that, let's remind ourselves of how we got here.

Paul Krugman