| BUSINESSWEEK ONLINE : JULY 31, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Asian Currency Crisis, Part Two? (int'l edition) Probably not. But political uncertainty is hitting hard As he watches his nation's currency weaken by the day, Indonesia's acting central bank chief Anwar Nasution can't help feel a sense of deja vu. The rupiah is down 25% since January, making it the world's worst-performing currency, and plumbing levels unseen since the crisis of 1997-98. ''A weak rupiah is like a monster,'' he says. ''We have to tame it.'' Similar anxiety is rippling across Southeast Asia. Since the end of March, the Thai baht has fallen 6.5% and the Philippine peso 9.5%. There is even concern that Singapore could get tarred with the same brush as its neighbors. In short, concludes Bank of America analyst Marshall Gittler, Southeast Asia is in a ''slow-motion'' currency crisis. Uh-oh. Are we in for Asian Meltdown, Part II? After all, in July of 1997 it was a tanking Thai baht that dragged down other Asian currencies, sparking a crisis that infected emerging markets worldwide. Could the plunging rupiah be another early warning? Well, probably not. Even though some Southeast Asian currencies seem to be in trouble simultaneously, there's little evidence that the problem will spread to Hong Kong, Korea, and Taiwan. True, rising U.S. rates are making life difficult for Asian central bankers, who are wary of following suit for fear they will choke off a tentative economic recovery. But the main reason Southeast Asia is getting hammered seems to be political uncertainty--beleaguered regimes in Indonesia and the Philippines, a looming election in Thailand--plus economic problems specific to each country. So other Asian currencies are unlikely to catch cold. Indeed, the South Korean won has appreciated about 2% this year on the back of an unexpectedly robust recovery. Says William Cline, chief economist of the Washington-based Institute of International Finance: ''It is probably wrong to read into exchange rates some harbinger of a new regional economic crisis.'' HISTORY RETREATS. That's because much has changed since the 1997-98 crash. Then, dangerously high levels of short-term foreign debt and serious economic mismanagement prompted foreign investors and lenders to flee the entire region in droves. Most of those investors never returned. ''There's no hot money here,'' says Chumpol Nalamlieng, president of the blue-chip Thai conglomerate Siam Cement. ''It's gone.'' This time around, the people putting pressure on Southeast Asian currencies appear not to be foreign hedge funds but local companies and financial institutions. Amid continuing political uncertainty and unresolved economic problems, they are protecting themselves against further currency declines. Nowhere is this more true than in Indonesia. There, corporations holding foreign-denominated debt coming due in the next few months have been trading their rupiah for greenbacks. Why? Because they suspect the rupiah will tank in late August, when erratic President Abdurrahman Wahid is scheduled to face a no-confidence vote over his economic stewardship. The seemingly arbitrary sacking of his trade and investment ministers also sapped confidence. Such jitters are being exacerbated by mounting religious strife across the archipelago. Nor does it help that Indonesia is behind schedule in auctioning rehabilitated loans and assets that were seized from cronies of former President Suharto. That has left a $5 billion hole in the national budget. Thailand is no Indonesia, but it has problems of its own. Voters must go to the polls by November. Investors inevitably are risk-averse before an election--especially when the economy, while much improved since the crisis, is far from trouble-free. Even though gross domestic product (GDP) will likely grow 5% this year on the back of an 11% surge in exports, domestic consumer spending is 20% off precrisis levels. Nonperforming loans remain an alarmingly high 36% of total debt. Moreover, the government recently disclosed it had miscalculated total foreign debt: It is $90 billion, not $70 billion. In the case of the Philippines, the culprit is disgust over the economic management of President Joseph Estrada. Because the Philippines escaped the worst of the crisis in 1997, it was expected to take advantage of its neighbors' weakness and become a powerhouse exporter. Yet shipments of semiconductors, which account for two-thirds of the country's electronics exports, fell by 19% in this year's second quarter. Meanwhile, the nation's current account surplus has been falling steadily since hitting 5.9% of GDP in 1999. Nomura International predicts it will fall to 2.7% in 200l. HESITATION MOTIVATION. Behind the weak exports is an unexpectedly sharp falloff in new investment--even though the world electronics market has boomed. That's because many companies sense that the Estrada government is adrift and incompetent. Investor sentiment is being further eroded by a hostage crisis in the nation's south that has dragged on for months, as Manila dithers. While weak currencies are helping some Southeast Asian exporters, they are hurting the region's equity markets. Investors have been especially leery of putting their funds into assets denominated in rupiah, knowing that Asian central banks will not be matching the rate hikes of the U.S. Federal Reserve. As a result, Southeast Asian bourses are among the world's worst performers. The Thai index is down 36% this year in baht terms and 42% in U.S. dollars. Indonesia's bourse is down 27% in rupiah and 43% in greenbacks. What's more, this makes it hard for the region's companies to raise funds for new investments, since neither foreign nor domestic banks have resumed lending. Policymakers hope they need not resort to the austerity measures taken to contain the 1997 crisis. The last thing they want to do is abort the region's recovery. But if the slide continues much longer, Southeast Asia could well be moving in slow motion back into the International Monetary Fund's emergency ward. By Bruce Einhorn in Hong Kong, with Michael Shari in Jakarta _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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