Explanations sought for Asian financial crisis

By Edward Neilan

Indonesia was biggest victim; China's problems will slow its growth; most solid economy for 1998 may be Taiwan's.

TOKYO (JP): How bad was it? How long will it last? What else can we expect?

Those are the three simple questions the man or woman in a Patpong Road barber shop or hair salon, a Myongdong book stall, a Shibuya record store, a downtown Jakarta noodle shop, a Kuala Lumpur coffee house, a Hong Kong tourist agency and a Taipei golf equipment shop would like to have answered about the "Asian financial crisis."

The air is filled already with heady technical theories and attacks on the International Monetary Fund and "American bankers" in attempts to explain what went wrong.

Crystal balls are selling well.

And there is the British journalist who "revealed" that the crisis will be an advantage to the United States which will gain low cost Asian exports and increase its leverage in Asia. Give that man a cigar.

What other markets have all these countries been depending on the past 10 years to chalk up export-led growth?

American presence in Asia is needed to maintain economic and security. Pseudo-nationalists hanging out at convenience stores in the region, who were hoping Uncle Sam would pack up and leave, had better get a grip.

Using July 1,1997 as a benchmark -- the day China took over Hong Kong from the British -- Indonesia has suffered a 71 percent currency hit and a 46 percent stock market loss, through Monday morning Jan. 20.

The experts may disagree but it appears to many laymen that the Hong Kong handover ignited a loss of confidence -- and perhaps a flight of capital -- that was part of the trigger mechanism of the Asian collapse.

In the same time frame, Thailand's baht currency lost 52 percent against the U.S.dollar and Bangkok's stock market index fell 33 percent.

For the rest of the region, the record was grim in the two measurements since July 1. In currency and stock market indices, South Korea was down 45 percent and 36 percent respectively; Malaysia down 41 and 50; Hong Kong down two and 41; China, down one and 45; and Japan, down 12 and 20. The China stock market figure is for the Shanghai B index.

Taiwan was the picture of stability in 1997 with a 12.5 percent stock market gain and only a marginal fall in the currency exchange rate.

As for how long Asia will be in the doldrums, the quick answer is two years, perhaps three.

A poll of Japanese think tanks early this week reached the consensus conclusion that China, Taiwan and Singapore would have respectable growth this year and lead the region's comeback.

The Japanese gurus, citing large current account surpluses and foreign exchange reserves as common stability factors among the three, placed China's growth expectation for 1998 at 9 percent, Taiwan's at 6.4 to 6.6, and Singapore's at about 6.5.

The joker in the deck seems to be China. If Beijing keeps its word not to devalue its overvalued renminbi, it will help stability on one hand, at least in the short term. But sticking to the present exchange rate undercuts China's competitiveness in Southeast Asia.

If China's growth is much less than low double digit, there could be pressures on the government, many experts agree.

Then there is the matter of the Hong Kong dollar peg to the U.S. dollar, which some see as a central factor in Hong Kong's stock market and property market slides. The Hong Kong situation is critical to China's development strategy. It was hoped that China's shares could be floated on the Hong Kong market and gain prestige and value there.

"The fewest surprises, the most stability for the year in economic and financial terms may be seen in the Taiwan situation," said one Tokyo-based Western analyst.

Across the Taiwan Strait in China, the analyst mentioned rising unemployment, background political infighting over issues like the Three Gorges development project, handling of state run industries and the military budget as potential disruptive factors.

Symbolically, the photo images of U.S. Secretary of Defense William Cohen signing defense agreements with top officials in Beijing and Tokyo this past week should help boost stability as the region struggles to regain its composure, confidence and equanimity.