Insight into Asia's
CURRENCY CRISIS
V
12
round table
WHAT'S NewS Issue 1 January 1998
Following the initial shock waves of the currency crisis in Southeast Asia, spin
doctors and market gurus were quick to label events there as 'hiccups' and
'corrections'. In light of recent developments in Korea, what does the new,
austere monetary and growth climate mean for the region? And how are our
own people there coping with a very different situation? What's NewS asked
Vietnam's Lai Chong Tuk, Chris Mol of Indonesia, Bangkok-based Hans
Winkelmolen and Klaas-Evert Engelse from Malaysia for their views on longer
term impact.
WNS:'Hiccup, correction in the market - ït
all sounds rather comforting, especially
when you're far away from the immediate
problems. But what is it like on the front
line?
Chris: One of the first remarks should he
that although Southeast Asia is looked
upon as one grey cloud of countries, these
countries have very different problems and
very different structures, so it is difficult to
generalize about a single impact on 'Asia'.
What's happening in Vietnam is very
different from what is going on in, say,
Thailand.
Lai: Chris is right. At first sight, there
appears to be little or no effect on
Vietnam. That's because it hasn't been
open or integrated into the economie
world in the same way as tigers and cubs.
So short-term impact will be very small.
The notion of problems arising from short,
hot money moving in and out of Vietnam
is a little fantastic - there is neither short
nor hot money there. (He can't help
laughing and neither can we.)
WNS: So any problems were there already?
Klaas-Evert Engelse from Malaysia
Lai:Yes. In the longer-term there will be an
impact because a decline in currency value
influences competitiveness. Labour itself
represents a significant input into all
production processes in the region. In that
sense, as labour costs in other countries
decline, we'11 be facing stiffer competition.
Chris: That's certainly a factor. In Indonesia
there are two major factors at work. Yes,
there was a correction and in hindsight
you can argue that all these pegs to the
dollar could not be maintained in the
longer run. That is what we now call the
first wave. The second wave is the impact
it has had on the corporates, ie. a lot of
Indonesian companies are financed in US
dollars, very short term, via CPs. Investors
are calling in the CPs which means the
corporates have to go into the markets,
have to buy the dollars there and, in
Indonesia at least, that was responsible for
the largest part of depreciation. Medium
term I don't believe this is a temporary
correction, I believe its a longer-term
correction, and if you look at the IMF
package for Indonesia, you see some
serious belt-tightening measures for the
next two years.
Lai: What about investment?
Chris: For the past six months, investments
across the board have been put on a back
burner, and it will remain that way for the
foreseeable future. This means GDP
growth will fall below 5 percent which in a
labour market which has to absorb 15
million new entrants every year will simply
mean recession. Combine that with El
Nino, with erop failures this year and that
might mean there will be some social
unrest. Up till "now, the crisis has been seen
as effecting gentlemen with neck ties,
rather than at street level.
Klaas-Evert: Are you expecting social
tension?
Chris: Yes. There have already been riots in
certain parts of Indonesia. We're also
talking real famine in some regions. The
stupid thing is that while the picture is very
bleak for the coming years, for the people,
the flip side is that IMF help is much
greater than expected. It's even greater
than the help to Thailand; Indonesia is still
in a position to pay off half its foreign debt
tomorrow.
WNS: Is that because the gentlemen with
ties understand how precarious the
situation is?
Chris: I think so. I think one of the
differences with Thailand, but I'd like to
hear Hans' view on that, is Indonesia has a
government which can enforce all the
necessary measures. And I guess the
problem in Thailand was that during the
height of the crisis no one was picking up
the phone. What you see in Indonesia is
that with the help of the Bank of Japan, I
the monetary authorities in Singapore, and
the IMF, the rupiah has appreciated, and
seems to be stabilizing. That helps.
Chris Mol of Indonesia
WNS: Where were they when they weren't
answering the phone?
Hans: No one was doing anything in
Thailand. That was the main reason the
baht depreciated so dramatically. It was
absolutely political. We've already seen the
beginnings of social unrest, people taking
to the streets - that was until early
November when the then prime minister,
Chevalit, resigned. The new man has
popular support and I think that is the first
step. One of the problems Thailand has
always had was political uncertainty. There
will be elections this month.
Lai: But that's not really good for stability,
is it? B
Hans: 1 don't really know whether that's
true. What we'11 get this time is a
government of technocrats who should get
things moving.
Lai: In the past that may have been true.
