Year of Tiger: Year of Recession

Year of Tiger: Year of Recession

By Beth Duff-Brown

KUALA LUMPUR, Malaysia (AP): The Year of the Tiger, according to Chinese superstition, can bring ferocious upheaval.

Six months into this tiger year, the once roaring Asian economies have experienced plenty of that. Several have fallen deeper into recession, a half dozen are slumping in that direction.

With Japan expected to announce its first year of negative growth in two decades Friday, the deflation of Asia's economic role model could push its proteges over the edge.

"The announcement will have a negative impact," said Rajeev Malik, regional economist at Jardine Fleming International Securities in Singapore. "I think the most immediate is likely to be felt in the currency markets."

Tokyo's announcement will come in the wake of today's sell-off in Asian stock markets and currency markets, which plunged after the U.S. dollar climbed to a seven-year high against the bellwether yen.

Economic confidence in Asia generally suffers when the yen takes a beating, even though regional currencies may not be directly pegged to it.

The first of the Asian dominoes to fall, Thailand has been in recession since last year, when its economy shrank by 0.4 percent, compared to 5.5 percent growth in 1996.

Next was Indonesia, also in full-blown recession. Before the deadly student riots last month that led to the fall of President Soeharto, analysts were already predicting an economic contraction of 10 percent. Some are now forecasting negative growth of 25 percent this year.

Market analysts also put South Korea in recession. The Korean economy is expected to shrink by more than 1 percent this year, which would be the first contraction since 1980.

Hong Kong's economy eroded by 2 percent in the quarter ending in March, the first negative growth in 13 years.

Malaysia and Singapore are both denying they're headed toward recession, if you go by the standard definition of a recession: two consecutive quarters of contracting growth.

Some economists say you can't always use this yardstick because the growth rates in some countries, such as Malaysia, have been so high.

"When your economy slows down from 8 percent to 1 or 2 percent that is, for all practical purposes, a recession," Malik said.

Malaysia's central bank announced last month that gross domestic product shrank by 1.8 percent in the first quarter, the first quarterly contraction since the mid-1980s.

Chia Yew Boon, research director at Singapore-based Santander Investment Securities, said a policy split within government has created uncertainty that is hurting Malaysia's chances of quick recovery. Chia expects the economy to shrink by 3.8 percent this year, compared with economic growth of 7.8 percent in 1997.

While Prime Minister Mahathir Mohamad has called loudly for lower interest rates to help troubled businesses, the central bank and Deputy Prime Minister Anwar Ibrahim, who is also finance minister, are adamant about keeping interest rates at current levels.

Bruce Gale, regional manager of the Hong Kong-based Political & Economic Risk Consultancy, said the expected announcement by Tokyo's Economic Planning Agency on Friday could badly bruise Singapore and Malaysia.

"Malaysia's been very much looking to Japan to be a leader in the region and to help Malaysia out with some of its short-term financing," Gale said.

Mahathir returned last Friday from Tokyo and said he expected to get US$ 1-2 billion worth of loans in yen, a prospect made less likely if Japan tightens its financial belt.

Singapore's growth for the first quarter of 1998 was 5.6 percent, but the figure is considered artificial because the first quarter of 1997 was unusually depressed.

"Singapore is highly vulnerable despite its good economic management," said Gale. "It's extremely vulnerable to a downturn in trade, which is going to result from the negative growth in Malaysia, Indonesia and Thailand."

The Philippines has escaped the worst of the Asian crisis. Though economic growth slowed this first quarter to 2.5 percent from 5.4 percent, no recession is expected.

Bitter enemies China and Taiwan have also stayed afloat amid the sinking economies. Taiwan is predicting GDP growth of 6 percent this year, down only 0.8 percent from last year.

China's Foreign Trade Minister Shi Guangsheng said Tuesday that currency devaluations in Southeast Asian countries had weakened the competitiveness of China's exports, but that China hoped to maintain its 8-percent growth prediction for the year.

Economist Malik doesn't believe the smaller Asian economies can do much to save themselves. He believes they need a comprehensive debt-relief package similar to that in Latin America in the 1980s.

"Debt forgiveness is what these countries need," he said. "Short of insuring transparency and eliminating policy contradictions, there is very little these countries can do on their own."