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.