Asia's high imports buck predictions

Asia's high imports buck predictions

By James T. Areddy

HONG KONG (Dow Jones): Thailand's imports rose at twice the
pace of exports last year, challenging the notion that an export-
led recovery has taken hold.

Raising a similar doubt, Indonesian exports actually fell a
little in 1999, even despite a doubling in the price of its key
natural resource, oil.

These figures confound conventional wisdom that the crisis-hit
countries of Asia are relying on an export renaissance to fuel a
return to growth. The numbers also support a growing view that
the trade surpluses built during 1998 will erode as the
economies, confidence and currencies strengthen again.

"All (of Asia's) trade surpluses will narrow in 2000," said
Kevin Ng, an economist at ABN-Amro Asia Ltd. in Singapore. He
figures the Philippines is even headed toward a small trade
deficit this year.

Trade numbers reported Monday in Thailand and Indonesia -- the
two nations that most defined the Asian economic collapse along
with South Korea -- served to temper enthusiasm that the entire
region is enjoying an unbridled export boom.

The boom, in fact, is largely electronics related. The
Philippines, which announced on Tuesday an almost 19 percent
growth in exports last year, has been a clear beneficiary of that
trade. (Its 1999 import numbers are due to be released mid-
month.)

However, Thailand and Indonesia feature lower-end value-added
manufacturing, and neither is an electronics-industry powerhouse.

Indonesia's lagging trade performance is a reflection of the
overall weak economic conditions there, so its experience may be
unique. Analysts expect 2000 to be the first year it chalks up a
full-year of positive growth since the upheaval that has wracked
it since 1997 erupted.

And granted, Thailand's 18 percent year-on-year surge in
imports during 1999 very importantly underscored an improvement
in the confidence of businesspeople and consumers. After the
country's 1997 devaluation wiped out buying power and the 1998
recession drove up local unemployment, Thailand has a natural
level of pent-up demand for imports.

"Last year you had nothing, this year you have something," Ng
said.

The danger is that since its exports only grew by 7.2 percent
in 1999, Thailand's only two-year-old trade surplus is threatened
with quick evaporation if the trends continue at the current
pace.

If that happens, markets might sell-down on a "knee-jerk
reaction that Asia could be going back to where it was before the
crisis," said Eddie Lee, regional economist at Vickers Ballas
Holdings Ltd. "But I suspect in the medium term that shouldn't be
a worry. There is sufficient buffer still."

Thailand's full-year surplus amounted to US$8.89 billion, down
about 27 percent from 1998, but imports were rising at three-
times the rate of exports in the latter months of the year. Plus,
the currency is strengthening as economic conditions improve.

Even in Asia's recovery leader, South Korea, imports grew
faster than exports in 1999, and will do so again this year. The
government sees exports up 8.9 percent in 2000, yet predicts
imports will jump 20 percent.

Thailand's surging imports look particularly ominous since the
nation virtually ate, drank and spent its way into the 1997
crisis. Its appetite for imported luxury foods, cognac and cars
led to a $16.1 billion trade deficit in 1996, equal to 8.9
percent of gross domestic product.

A Bank of Thailand official sought to play up the positive
aspects of last year's rise in imports by explaining Monday that
manufacturers were buying more raw materials overseas to feed
busy production lines gearing up to export finished product. The
central bank cited more manufacturing in the car, car-part, iron
and steel industries.

"If that is the explanation, then we should see exports and
imports pick up together," commented ABN-Amro's Ng. "It may be
part of the reason, but it is not the whole reason."

The central bank official, Atchana Waiquamdee, who heads the
economic research department, did express worry that a trade
deficit could return in 2001. But industry, not connoisseurs or
sports-car enthusiasts, will drive the demand, she pointed out.

Vickers Ballas' Lee agreed. "You're not seeing the same kind
of spending on high-end goods as in the past," he said, although
he does see signs of increased spending on big-ticket items.

Atchana noted that the nation's trade surplus of around $440
million last year helped underpin a $1.91 billion balance of
payments surplus. Year-end foreign reserves stood at $34.8
billion, equivalent to 8.7 months of imports, the central bank
noted.

In its forecasts, SG Securities Research Ltd. agrees there
will be a continued erosion in the trade surplus of Thailand and
other Asian countries through 2002.

However, its analysts see Thailand flush with "a large pool of
precautionary savings" accumulated in the financial crisis. And
consumer spending will only provide an adjunct to an economy
driven mostly by manufactured exports.

Commenting on the full set of October trade numbers, SG said
in a report that despite a 32 percent import jump year-on-year,
the 19 percent rise in exports is more notable because it marked
the first time exports topped $5.0 billion a month since the
crisis.