Australia plays down Asian financial crisis

Australia plays down Asian financial crisis

CANBERRA (Reuters): Australian Treasurer Peter Costello,
buoyed by strong economic data, yesterday rejected economists'
warnings that Asia's financial crisis would engulf Australia and
stunt economic growth.

Australia's biggest trade earnings came from strong economies
outside Southeast Asia, which would help Australia weather a
possible export downturn in the region, Costello said.

However, fears of an Asian recession landed on Australia's
doorstep yesterday, sparking a sell-off of the local dollar as
investors took fright at the pain likely to be felt by the
region's closest trading partners.

In the first clear sign of Australia's vulnerability to the
Asian crisis, the Australian dollar shed 1-1/2 cents to a 28-
month low of US$0.7100.

The stampede out of the currency came after financial market
economists issued fresh reports warning Southeast Asia, the eye
of the economic storm and a major buyer of Australian goods,
faced zero growth or even recession.

Economists have warned the financial and economic crisis that
has already forced Thailand and Indonesia to seek foreign help
and has hit neighbouring economies could flow on to Australia and
wipe up to 1.5 percentage points off growth in 1997/98.

"In relation to Southeast Asia ... about 10 percent of our
exports go to the four countries most affected," Costello said,
referring to Thailand, Indonesia, Malaysia and the Philippines.

"Our biggest trading partners are still Japan, the U.S.,
(South) Korea, New Zealand and, of course, they are strong
economies ... that won't be affected, as the Australian economy
won't be affected, in any large measure by this."

The Australian dollar fell on Wednesday to 71 U.S. cents, its
lowest level in more than two years, as investors stampeded out
of the currency due to concerns about the impact of the Asian
crisis and the chance of another rate cut.

Official data released yesterday showed Australian inflation
tumbling to its lowest level in a generation, fuelling
speculation of a sixth interest rate cut in 15 months.

The Consumer Price Index measure of inflation actually fell
0.3 percent in the year to September, the data showed.

Australia is contributing US$1 billion to a US$17.2 billion
international bailout package for Thailand and has offered to
help Indonesia if necessary.

Defending its aid package against critics such as race row
politician Pauline Hanson, Canberra has said Australia's own
economic interests gained from measures to shore up stability and
economic growth in the region.

Asia's ill winds could blow about one percent off Australian
economic growth in the fiscal year ending June 1998, they said.

One of Australia's biggest fund managers, National Mutual
Funds Management (NMFM), said on Wednesday it believed the
economic cost to Australia could even be higher over time.

"Basically we reckon it's going to be something like 1.5
percent to two percent off growth because Asia, including Japan,
takes 65 percent of our exports," NMFM's head of international
strategy and research, Nigel Purchase, told Reuters.

Brokerage SBC Warburg was reported to have warned of a "full-
blown" recession and banking crisis in Southeast Asia, knocking
0.8 of a percentage point off Australian growth.

Other economists were more sanguine, forecasting the Asian
turmoil would at worst retard 1997/98 growth by 0.5 percent.

Among the bears, NMFM sees economic growth of only 2.75
percent in 1997/98, compared with the government's forecast of
3.75 percent growth and official talk of perhaps four percent.

Australian companies caught in the cross-fire of the Asian
currency crisis may tell a different story, with exporters facing
sluggish demand and local manufacturers facing stiffer import
competition from Asian rivals, economists said.

Many share market investors have already turned their backs on
companies they see as vulnerable.

Soft-drink bottler Coca-Cola Amatil Ltd, which counts the
Philippines as its biggest revenue generator, and casino operator
Crown Ltd, which draws half its revenue from Asian visitors, have
both seen their shares fall heavily.

The Asian crisis has also cast a shadow over current
negotiations between Australian iron ore and coal producers and
their big Japanese customers on 1998/99 prices.
Coal and iron ore are two of Australia's biggest exports.

The prices they fetch in Japan will hinge partly on demand for
Japanese exports from the rest of Asia, said Australian think
tank National Institute of Economic and Industry Research.

But while some Australian companies are preparing to weather
the storm, others now see buying opportunities, especially in
Southeast Asia, and a chance to ride the next wave of growth.