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.