Business strategy in Asia Pacific<\/p>\n
By Sofyan Wanandi<\/p>\n
The following article is based on a paper presented at the
\nAsia Pacific Economic Cooperation forum's CEO Summit in
\nVancouver, Canada on Sunday. This is the first of two articles.<\/p>\n
VANCOUVER, Canada: The currency and economic crises affecting
\nthe Southeast Asian region in 1997 were not totally unexpected
\ngiven the already evident strains on economic fundamentals --
\nhigh current account deficit, over expansion in unhedged
\nborrowing, and high levels of capital inflow.<\/p>\n
However, the extent of the shock and the contagion effect that
\nbegan with Thailand's crisis and spread to the rest of the ASEAN
\ncountries, took all of us by surprise. Even Singapore, which was
\nrunning a current account surplus, was affected and the contagion
\neffect appears to have spread to the Asia Pacific region --
\nincluding the U.S. We will all be wondering how to analyze this
\noutcome for many years to come.<\/p>\n
All the economies in Southeast Asia have experienced a
\nshakeout of significant proportions since July, with dramatic
\nlevels of depreciation of their currencies against the U.S.
\ndollar and the plummeting of stock market indexes.<\/p>\n
Governments have struggled to respond to the crisis by
\nundertaking tight monetary policies, rescheduling big and
\nprestigious projects, taking other budgetary measures, dealing
\nfirmly with financial sector weaknesses, and deregulating trade
\nrestrictions and export promotion measures.<\/p>\n
Thailand and Indonesia have in fact also sought and received
\nassistance from the IMF, as well as receiving supplementary funds
\nfrom neighboring countries. In total Thailand received US$17
\nbillion and while Indonesia received $34.2 billion. Most
\nimportantly, in the case of Indonesia, the U.S. contributed US$3
\nbillion.<\/p>\n
The measures attached to such an IMF package reinforced the
\nsteps the government was planning to undertake and forced them to
\nhappen sooner rather than later. While the Thai cabinet debated,
\nand subsequent cabinets changed the steps needed to implement the
\nIMF package, in Indonesia the steps to be taken were determined
\nprior to the approval of the loan and second-tier standby
\nfacility.<\/p>\n
The medicine was most bitter, with a budget surplus being
\ntargeted and the liquidation of 16 banks. The implementation is
\nstill to be completed and will be reviewed every three months by
\nthe IMF.<\/p>\n
While uncertainties remain, there has been restoration of
\nmarket confidence and some measure of stability. The lessons are
\nalso clear -- they are not dissimilar to those we thought we
\nlearned from the Mexican crisis.<\/p>\n
There is a need for timely and accurate information disclosure
\nby governments with regard to economic data and by
\nbusinesses\/banks regarding their performance; misinformation
\nleads to rumors and speculation.<\/p>\n
Governments, in their words and deeds, need to provide clear
\nsignals and greater transparency; inconsistencies and mixed
\nsignals affect investor confidence in the short-term and more
\nimportantly cloud the medium-term outlook of the country's
\nprospects.<\/p>\n
Political will in undertaking the necessary and difficult
\nsteps to bring the economy to a more efficient and competitive
\ncondition by reducing protection and opening up domestic markets,
\nneeds to also be demonstrated clearly.<\/p>\n
Furthermore, the issue of ensuring political leadership -- and
\nthe smooth transition from one leadership to another -- as well
\nas having a more open political system, also needs to be
\naddressed. The present currency turbulence highlights the
\nimportance that investors have placed on such issues.<\/p>\n
All our economies are in transition. The present crisis was a
\nwakeup call for both governments and businesses. The government
\nhas taken steps to respond, and continuous action will be needed.
\nThe business sector also realizes that the rules of the game have
\nchanged.<\/p>\n
A less predictable exchange rate environment means that there
\nis a need to guard against currency risk. Companies caught with
\nexpansions being funded by dollar and short-term lending, which
\ndried up in the crunch, also relearned the basic lesson of
\nmatching assets and liabilities in terms of currency as well as
\nterm structure and diversification of sources of funding -- along
\nwith the dangers of overexpansion.<\/p>\n
In the short-term our economies will experience a slow down as
\nthey adjust to changes in government policy and investor
\nconfidence is restored. It will take time for investor
\nconfidence, and thus investments, to flow back to the region.<\/p>\n
The private sector's process of consolidation and
\nrestructuring, as well as weak consumer demand, will affect
\ngrowth in the next year or two.<\/p>\n
However, if the adjustment policies are undertaken
\nsuccessfully and governments and businesses use this opportunity
\nto make the necessary self-corrections and recognize that they
\nwill be operating in a different environment henceforth, I am
\nconfident that in the medium-term, the prospects continue to be
\nbright.<\/p>\n
The basis of our economies are still sound and given that the
\nright steps are taken, I am confident that we will be on track to
\na stable growth.<\/p>\n
Sofyan Wanandi is chairman and chief executive officer of
\nGemala Group.<\/p>",
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