Southeast Asia not out of crisis yet

Southeast Asia not out of crisis yet

By Andreas Baenziger

SINGAPORE (DPA): Has the economic crisis in Southeast Asia already reached its low point? Is an upturn likely in the foreseeable future? Is the catastrophe which brought down the region's "Tiger economies" in mid-leap almost over?

It depends on which expert is talking. And whichever one it is, it is wise to remember that not one of them -- not a single one! -- saw the crisis coming. Indonesia, for example, was praised to the heavens as a wunderkind, a model economy for other developing countries to emulate, almost to the moment it went into free-fall.

When these same individuals and institutions -- the World Bank, the International Monetary Fund, governments and various economists -- try to tell us exactly how things are going to play out, a little caution is in order. The signals out of the region are mixed, contradictory even.

The Philippines, for example, appears to have the worst behind it, having even recorded a small measure of growth in gross domestic product in the third quarter. And Thailand is also showing some positive trends: the stock market is climbing again, the baht has regained a little ground, and interest rates have fallen.

To the same extent, however, the Thai government's willingness to push through painful reforms has declined.

And next door, meanwhile, Malaysia has just reported a disastrous third quarter, with the economy contracting by 8.6 percent from the same period a year before -- a showing that was much worse than expected.

Malaysia has broken ranks with the countries which, in return for billions of dollars in financial support, have agreed to follow strict IMF stabilization plans. Going its own way, Malaysia has suspended free trading in its currency, the ringgit, opting instead to peg it to a fixed rate against the dollar.

Prime Minister Mahathir Mohamad wants to protect his country from the unpredictable fluctuations of free markets and what he sees as the avarice of international speculators, whom he blames for Malaysia's problems.

The Malaysian experiment has attracted huge interest, running as it does directly contrary to the worldwide trends towards globalization and deregulation. And there is no doubt that Mahathir has gained his compatriots a certain breathing space.

But the question remains of whether it really represents reform or is intended merely to help keep his cronies' debt- burdened conglomerates above water.

Indonesia, whose estimated 202 million people make it the world's fourth most populous country, remains a near hopeless case. Interest rates have fallen and the rupiah has regained some ground after the terrible battering it took early this year, but both gains were from extremely weak positions; the basis for a solid economy is still missing.

Gross domestic product has plunged this year by 15 percent and is expected to fall further next year. The deep mass poverty this has caused is so grave that even the IMF was moved to support massive aid for the hardest-hit Indonesians.

More significant for the long term, perhaps, is the change in thinking that is coming increasingly into evidence, with unrestrained globalization and deregulation no longer the unquestioned holy writ. The "Tigers" are still developing countries, and as such are not yet ready to be abandoned to the laws -- some might say the lawlessness -- of the international financial markets.

Increasingly, a call is being heard for more transparency and stronger institutions, along with rules for controlling the speculative capital which in seconds can cross the world.

In its most recent analysis, released last week, the World Bank went so far as to make an indirect criticism of the orthodox formula which its sister organization, the IMF, applied at the beginning of the Asian economic crisis.

The IMF hoped to overcome the crisis with stronger budget discipline and high interest rates, both aimed at stabilizing currencies. But these policies, while failing to halt a slide in the currencies' values, pushed small and mid-sized businesses into bankruptcy.

Perhaps everyone would benefit from a good look at Singapore for an idea of what the near future will bring. The city-state, as a regional service center with no significant agricultural production, is obviously a special case, but it also has a well- deserved reputation for keeping a cool head during crises.

Singapore has introduced a package of measures which will have the effect of giving the economy an additional boost of S$10.5 billion (US$6.25 billion); after years of piling up surpluses, the government will run a budget deficit, in large part by halving the percentage of salaries which employers must contribute for social benefits to 10 percent. And salaries themselves will be reduced by 6 percent.

This should increase Singapore's competitiveness -- especially vis-a-vis rival Hong Kong, and even Singapore's (admittedly state-linked) labor unions have not complained.

They must recognize the seriousness of the situation.