Southeast Asia faces two to three years of pain
Southeast Asia faces two to three years of pain
By Roberto Coloma
SINGAPORE (AFP): Southeast Asia faces a sharp and painful slowdown in the next two to three years after a currency crisis slammed the brakes on an astonishing growth run which masked serious regional flaws, economists say.
When the history of the vaunted Southeast Asian "miracle" is written, 1997 will be remembered for the resounding crash of the Thai economy, once among the world's fastest growing, and the regional contagion it engendered.
As condos lay unsold, banks went bust, BMWs were repossessed and fastfood replaced gourmet lunches, Southeast Asia swung from exuberant breast-beating to a sense of gloom and helplessness.
"How could events in Southeast Asia unfold as they did, after so many years of outstanding performance?" IMF chief Michel Camdessus wondered as he toured the region earlier this month to confer with presidents and prime ministers.
Earlier forecasts of more than seven percent average gross domestic product GDP) growth for the region in 1997 and 1998 have vaporized.
Investment houses polled by AFP warned of zero growth for Thailand in 1997 and negative figures in 1998 with the situation easing in 1999 -- if reforms take hold.
The Thai government itself has downgraded its 1997 forecast to 0.6 percent, from 2.5 percent, and the 1998 figure to zero to 1.0 percent, from 3. 5 percent.
According to the Asian Development Bank, Southeast Asian economies grew by an average of 6.4 percent between 1981 and 1990. Over the next six years this surged to 7.4 percent, with Thailand leading the way.
Camdessus said "numerous signs of a gathering storm" were evident in Thailand: an appreciating currency amid slowing exports, a wide current-account deficit financed by a substantial amount of short-term capital, rising external debt, inflated property prices, and a weak and over-exposed banking system.
When Thailand's currency fell in July, neighbors' exchange rates came under pressure and their less serious shortcomings went under a magnifying glass. Frantic efforts to impose market controls only hastened a capital stampede.
The crisis brought down the government of ex-general Chavalit Yongchaiyudh and returned former premier Chuan Leekpai to power, giving him the unenviable task of implementing major reforms linked to a 17-billion-dollar bailout engineered by the IMF in August.
Regional giant Indonesia also had to seek a bailout from the IMF, giving it access to a first line of credit amounting to US$23 billion, backed by a supplementary package which could bring the total to nearly $40 billion.
Now, Asian industrial powerhouse South Korea has also been forced to seek IMF help after the crisis crept northward, and economists say its rescue could top the record $50 billion accorded to Mexico in 1995..
Trouble in the Japanese market this week from the collapse of leading stockbroker Yamaichi Securities has complicated the regional situation.
Since July 2, when Thailand effectively devalued its currency and triggered the crisis, the U.S. dollar has gained an average of 38 percent against five key Southeast Asian currencies.
It has risen some 60 percent against the Thai baht, 50 percent against the Indonesian rupiah, 39 percent against the Malaysian ringgit, 31 percent against the Philippine peso and 12 percent against the Singapore dollar.
Indonesian President Soeharto lamented at a summit of the G15 bloc of developing countries in early November that "the hard work, diligence and sacrifices over several decades were wiped out overnight."
Malaysian Prime Minister Mahathir Mohamad, enraged by the disruption of his plans to turn his country into an industrialized nation by 2020, accused foreign speculators of plotting to bring Southeast Asia to its knees and estimated that $200 billion in regional wealth had been wiped out.
Even socialist-ruled Vietnam had to effectively devalue its currency, the dong, when Thai rice became cheaper on the world market.
As the costs of the crisis continued to mount, Claude Smadja, managing director of the influential Geneva-based World Economic Forum, warned against "lurching from the almost over-exuberance of the past to over-pessimism today. "
"There will have to be strong corrective measures and policies to address some of the structural imbalances created in the last few years, and the next two or three years will be marked by an adjustment process in the whole region which will carry various degrees of pain and social stress, depending on the countries involved," he said.