Caution for the Southeast Asian region
Caution for the Southeast Asian region
SINGAPORE: Southeast Asian economies are not doing well. That
is a stark fact that regional governments ought to face squarely.
There is no use trying to sweep it under the carpet, or minimize
the warning signs. Investors cannot be fooled.
The 85 million people in three of the region's largest nations
-- Indonesia, the Philippines and Thailand -- now languishing in
poverty, are well acquainted with the reality. And the region's
chief competitors -- China, India, South Korea and Taiwan -- know
an opportunity when they see one, and have already begun to
siphon off foreign direct investments that might otherwise have
come to Southeast Asia.
Such are the facts of life in post-crisis Southeast Asia, and
no amount of rhetorical gilding can hide them.
Significantly, the underlying causes of the region's present
troubles are the same as those which caused the financial crisis
of three years ago. Then, as now, corporate governance and
regulatory laxity remain the issues.
To be sure, regional economies have made progress in putting
things right since then, but a great deal remains to be done, as
the latest statistics on non-performing loans (NPLs) indicate.
Thailand, for example, has reduced its non performing loans
from 47 per cent in May 1999 to 22.2 per cent, but a good part
of the debt restructuring involved little more than debt
rescheduling or interest relief.
As the deputy director of the International Monetary Fund's
Asia-Pacific department has pointed out, markets have the sense
that the "rescheduling component has been emphasized a lot more
than the restructuring component".
On paper at least, Indonesia and Malaysia seem to have done a
better job than Thailand, but the reality may be different.
Malaysia, for instance, through its Corporate Debt
Restructuring Committee and Danaharta, has made tremendous
progress in handling the "distressed debts" of its corporations
and the NPLs of its banks, yet the debt of its top five business
groups, according to London's Financial Times, still amounts to
RM$50 billion (S$23 billion) half of which is thought to be non-
performing although it is not classified as such.
According to IMF officials, the single main obstacle in
cleaning up regional corporations is the lack of a basic
bankruptcy and legal framework. Too frequently, politically
connected companies are able to resist bankruptcy proceedings;
questionable financial juggling goes on that ends up stiffing
ordinary shareholders to benefit a handful of privileged people;
and the courts, where they exist, are powerless to enforce the
laws.
Admittedly, none of this is new to the region -- and for that
reason, easily changed -- but their persistence three years after
the financial crisis began have made already-wary foreign
investors more anxious.
Last year, the Association of Southeast Asian Nations received
only 17 per cent of developing Asia's foreign direct investments,
compared to China, which got more than 60 per cent. As for
foreign portfolio investments, apart from Singapore firms, ASEAN
companies have been virtually frozen out of capital markets,
while Chinese companies listed overseas or in Hongkong are
expected to raise US$20 billion (S$35 billion) this year.
China's economy is not more transparent or better regulated
than, say, Thailand's or Indonesia's, but the sheer size of its
market and its abundant labor make up for all its disadvantages.
To compete against such a giant, Southeast Asia has no
alternative but to be better than other emerging economies in
Asia. The truth is that the era of free-flowing foreign
investments, drawn to the region by double digit growth rates, is
over.
To attract investments, the region must make itself
attractive.
The Straits Times / Asia News Network