Explanations sought for Asian financial crisis

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.