With their economies in a mess, Southeast Asian countries have mooted a monetary fund without Western participation
"I used to fly 10,000 feet above ground. Now I sell sandwiches." —Siriwat Voravejvutkuth, a rich stock and property broker who has fallen on hard times. Thailand's economic crisis has red -uced him to selling sandwiches at a hospital. "Speculators like George Soros are killing us all." —A currency dealer in Manila.
"ASEAN countries have spent 40 years trying to build up their economies, and a moron like Soros comes along with a lot of money." —Malaysian premier Mahathir Mohammad on the recent attacks on Southeast Asian currencies by foreign speculators. "Mahathir is a menace to his own country." —George Soros criticising Mahathir's suggestion that currency trading was unnecessary, unproductive and immoral, and should be banned.
THESE are bizarre times in troubled Thailand and its ASEAN neighbours. Impoverished by the 40 per cent devaluation of the baht, Thais are depositing their gold Rolex watc-hes and teeth fillings at the pawnbroker's, but the Thai government is running an incredulous series of adverts on CNN that show the mercury falling to 98.4 above the words: "Thailand on the road to recovery." A Thai banker said of his government: "They are in a state of denial. They're still pretending nothing's happened."
Over in Hong Kong at the IMF/World Bank annual meeting, the leaders of Southeast Asia's so-called miracle economies, battered by relentless attacks on their currencies that stripped their values, thumbed their noses at the IMF and were banding together on September 23 under the leadership of Japan to set up their own, all-Asian rescue monetary fund worth $100 billion to help defend their currencies against speculative attacks. Not surprisingly, the US, Europe and the IMF were not supportive of such a move as they feared it could be the first step towards the formation of a powerful bloc that would exclude the West and funnel funds to a country in trouble, heaven forbid, without strings attached.
US Treasury secretary Richard Rubin said at the IMF/World Bank annual meeting that he did have concerns over the rescue fund, but later agreed to attend future talks on the proposal as the US did not wish to be left out. The IMF's first deputy managing director, Stanley Fischer, was more blunt. "We would be concerned about the establishment of an international body that would undercut the IMF's conditionality," he said, referring to the dangers of providing funds to a country in trouble without requiring it to put its financial house in order. Analysts said Fischer's comments revealed his fears that the IMF could face severe competition from a new rescue fund, thereby diminishing its role and importance.
Analysts feel that the US fears being excluded from the proposed rescue fund and that the fund could eventually clear the way for the formation of the East Asian Economic Caucus, first proposed in the mid-1990s by Mahathir, but abandoned due to a lack of support from Japan as the caucus pointedly excluded the US. Some regional analysts feel that the proposed rescue fund will fail to take off, as its backers will not be able to raise the $100 billion needed.
Even if the rescue fund does manage to get off the ground, it could take it years to become operational. Till then, Southeast Asian governments are worried about a fresh round of attacks on their beleaguered currencies. Says Andrew Maule, banking analyst at stockbroker Vickers Ballas, Bangkok: "The worst is over in terms of the weakening of the currencies. But if their macroeconomic policies are unclear, these countries will be vulnerable to further currency attacks".
SOUTHEAST Asia's fears were magnified after they heard the verdict of European officials at the Europe-Asia finance ministers' meeting in mid-September in Bangkok who warned that Asia would face greater volatility in its foreign exchange markets after the introduction of a single currency, the Euro, on January 1, 1999, because speculators would shift their attacks from Europe to Asia. Analysts in Bangkok agreed, saying that as the Euro was likely to become a strong and stable currency backed by the European Central Bank, it would become tougher for international speculators to attack it.
For now, the Southeast Asian economies are bleeding. Their stockmarkets are headed south, their currencies are weakening and large-scale layoffs are on the cards. Over a million people are expected to lose their jobs this year in Thailand, four million next year. As their currencies plummet, the cost of dollar-denominated loans has risen. Thai companies have unhedged loan liabilities worth $40 billion in short-term debt. The figure is about $55 billion in Indonesia.
While Thailand suffers a massive liquidity crunch that has virtually killed off business, Malaysia and Indonesia have acted to cut spending and profligate lending. Malaysia mothballed its multi-billion dollar controversial Bakun dam project in Sarawak province, and Indonesia slashed infrastructure projects worth $21 billion in September.
The currency crisis is taking an economy-wide toll. Demand for the Malaysian national car, Proton, has dried up. In Bangkok, watches, gold teeth fillings, premium XO cognac, fishing rods and mobile phones are also turning up at the pawnbroker's, says a report by the Thai Farmer Bank. Analysts fear bloody street protests and forecast the collapse of the coalition government. Thailand's plan to become the "Detroit of the East" by achieving its goal to produce a million cars a year by 2000 has been muddied. Car sales this year are expected to fall short of the target of 460,000 vehicles.
The crisis broke in Thailand this February and continued roiling the markets through August. Canny speculators sitting in New York, London, Hong Kong and Singapore began aggressively selling the Thai baht in a bid to weaken the currency and take profit. They succeeded. The Thai central bank abandoned its nationalistic, and ill-advised, defence of the baht—but after wasting $15 billion—and allowed the currency to float on July 2, a de facto devaluation. The baht immediately lost 45 per cent of its value, and millions of Thais could no longer afford to buy their favourite fragrant jasmine rice and settled for cheap instant noodles.
Speculators such as billionaire philanthropist George Soros, New York investment banks Goldman Sachs and J.P. Morgan and a greedy herd of bucketshop operators then pierced the chink in the armour of other Southeast Asian countries whose economic fundamentals were weak. Thailand, Indonesia, Malaysia and the Philippines were unable to cope with the Soroses of the world as they had bloated current account deficits of 3 to 8 per cent. Malaysia and Thailand faced a catastrophic export slowdown, and all four countries had overbuilt property sectors. "This was pure greed. Property developers in all these countries had borrowed billions from banks and were unable to repay," explains a banker. The property bubble had burst and the boom turned to bust.
As the attack intensified, the embattled Philippine peso shed 28 per cent of its value against the dollar, the Indonesian rupiah plunged 22 per cent, and the Malaysian ringgit 16 per cent. Even the Singapore dollar dropped more than 10 cents to the US dollar. As regional central banks rushed to defend their currencies, they lost billions of dollars. Mahathir launched a blistering attack on Soros and imposed restrictions on stockmarket trading. But the curbs backfired, as both the Malaysian currency and markets saw their sharpest declines, and forced Mahathir to roll back some restrictions.
This flip-flop did not go unnoticed by the Hungarian-born Soros. At a World Bank seminar in Hong Kong on September 22, Soros said: "He (Mahathir) is playing to a domestic audience and he couldn't get away with it if he, and his ideas, were subject to the discipline of independent media inside Malaysia."
The maximum impact was felt in Thailand, which is battling a series of other crises. Banks may have to write off some $20 billion in bad loans in a snowballing financial crisis that has seen the forced closure of 58 finance companies. Thai exports are expected to be negative for a second year running, and annual growth rate no more than 2.5 per cent. With available foreign exchange reserves of just $6 billion, down from a high of $40 billion last year, the Thais turned to the IMF in August for a bailout package of $17.2 billion. Now, new worries are plaguing the government that the IMF may withdraw its package if Bangkok fails to comply with strict conditions, just as it withheld funds from Pakistan and Nigeria.
But all's not lost. "The nice thing about all this bad economic and corporate news is the cleansing effect corporate bankruptcies tend to have. Southeast Asian governments will have a chance to put their houses in order," says an analyst. But there is little evidence of spring-cleaning at present, as governments are still licking their wounds and scrambling to perform damage-control.