Emerging Economic Crisis?

Asia Could Be in Dire Straits, Again

News Analysis By George Friedman Special to ABCNEWS.com Aug. 4  Signs are emerging in Southeast Asia that strongly suggest a relapse of the economic crisis that struck the region in 1997. Three years ago, the Asian economic miracle came to a very public end. Under pressure, Thailands currency collapsed and culminated in a general financial panic. Since then, Asian economies have struggled to recover. Some, like South Koreas, have done better than others. But in general, most Asian nations have been unable to institute the radical restructuring required for recovery. Some, like Indonesia, have simply lacked the wherewithal for reform. Others, like Japan, lacked the political will to endure the wrenching social costs. Now, we are seeing signs that Asias economies are once again running into trouble. Indeed, Thailand, the first domino to fall in 1997, seems to be leading the way again. The Thai government was forced to intervene several times in the past three months to stabilize the national currency, the baht. According to Thailands The Nation newspaper, the Bank of Thailand intervened in the London market on July 26 in an attempt to strengthen the baht, which had fallen to its lowest level since September 1999. Other Countries, Too Thailand is not alone. The Philippine peso, which often closely follows the baht, came within 0.134 pesos of its weakest crisis point of 45.209 to the dollar on July 27. The Indonesian rupiah hit its weakest point since October 1998 and the Singapore dollar fell to its weakest point since September 1998. But the baht has taken the most disturbing path of regional currencies. The currency experienced a general downtrend since 1998, with intermittent upswings. This general pattern is seen throughout Southeast Asia; the peso declined more sharply than the bath, and the rupiah has declined steadily since presidential elections in October 1999. In the face of this pattern, stronger countries, like Singapore and South Korea, have been forced to weaken their currencies in order to remain competitive with regional rivals, so their goods are priced low enough when exported to sell. Three key factors are behind these events. First, Asia has not truly recovered from the 1997 crash. Second, the U.S. economys continued strength  along with rising U.S. interest rates  has put heavy selling pressure on Asias currencies. Finally, political and social instability in Asia is on the rise, decreasing investor confidence. This last is the key to understanding the regions problems. The fragility of the regions political systems makes meaningful reform impossible.

Corruption Allegations Consider Thailand. Thailands ruling party was badly beaten in the mayoral election in Bangkok on July 23 by Samak Sundaravej, a deputy prime minister during the 1997 financial crisis. Dogged by corruption allegations, Samak supports close cooperation between government and business while opposing press freedoms. He epitomizes the pre-1997 politician-businessman whose manipulation of the banking system greatly contributed to the Asian financial meltdown. Nevertheless, he won. He defeated both the ruling party and the new opposition party  both of which advocated economic reform. Faced with the need to change, the public returning to the politicians who created the crisis in the first place. Other nations in the region are facing equally difficult political situations, as dissatisfaction mounts over the lack of economic recovery. Confidence in Indonesias president, Abdurrahman Wahid, has steadily declined since his October election, and he faces an August showdown with parliament. In the Philippines, President Joseph Estrada faces continued corruption accusations and has pulled the nations few resources into an all out military campaign against Islamic insurgents. In Malaysia, competition from the Islamic opposition has weakened Prime Minister Mahathir Mahathirs grip on power.

Currency Spiral If Thailand fails to control the declining baht, the Philippine currency will certainly collapse. Indonesias economic weakness also threatens to trigger another currency crisis and Jakarta has asked its neighbors for assistance. Despite Mahathirs currency controls, Malaysia, too, would be unlikely to avoid a regional relapse. It is equally unlikely that international intervention will create stability. The International Monetary Fund and the major powers can stabilize currencies briefly. But currency instability is a symptom of the problem, not the problem itself. IMF austerity leads to social chaos; lack of austerity leads to social malaise. The real issue is how far north the disease will spread. If Southeast Asia moves into crisis, Japan and China will not be far behind. Asia and the United States now appear caught in a zero sum game, in which U.S. economic strength costs Asia dearly. And, as long as Asia inefficiently maintains social stability, it cannot rebuild its economy. The regions best hope is that the long-term malaise will be just that  long term  and will not turn into another crisis.

George Friedman, Ph.D., is a best-selling author and the chairman of Stratfor.com, an Internet-based provider of global intelligence headquartered in Austin, Texas.

http://www.abcnews.go.com/sections/world/DailyNews/stratfor.html

JB

-- Jackson Brown (Jackson_Brown@deja.com), August 05, 2000

Answers

Looks like we are getting closer to the bottom of the barrel of all that extra cash we printed up for Y2K.....if our economy is booming, the others start to pull out of a recession and when we start to level off, they head back down hill. In the past it has taken a war for allot of what has been happening globally.....brace yourselves.

-- Christopher (Chris@Chris.com), August 06, 2000.