For many in Asia, the brief spate of market turmoil this week following Thailand's decision to defend its currency by setting limits on foreign investments was eerily familiar.
Nearly a decade ago, a crisis over the Thai baht dragged much of region into recession.
But for now, there seems little likelihood of an Asia-wide financial crisis similar to that triggered by a plunge in the baht in July 1997. Nearly a decade on, regional banks and economies are far more robust and better managed than back then.
PHOTO: AFP
"The risk levels for the two periods are incomparable," says economist Somchai Jitsuchon at the Thailand Development Research Institute, an independent think-tank.
In the go-go 1990s, many Asian countries were carrying huge overhangs of foreign debt. Crony capitalism trumped risk management at many regional financial institutions.
"There will be more problems, but it will not be like the crisis in 1997," said Sompop Manarangsan, an economist at Bangkok's Chulalongkorn University.
"[Back in the late 1990s] we had over-investment, over-consumption and over-borrowing and the macro-indicators were bad," he said.
Thailand, for example, had big trade and current account deficits. But now, the country runs a robust trade surplus and has nearly US$65 billion in foreign currency reserves, far more than it did in 1997.
Back then, the baht plunged in value, kindling speculative pressures that forced other nations in the region to allow their currencies to fall as well, making it difficult to repay dollar-denominated debts.
But this time, Thai authorities acted because the baht was judged to be too strong. Before Monday, it had gained 13 percent against the dollar this year, the most of any regional currency.
And although Thai manufacturers gripe about the strong baht, which makes their products more expensive overseas, exports are up about 20 percent this year.
In South Korea, the 1997 crisis hit hard -- but it also forced the country to reform its heavily indebted family-owned conglomerates, streamline its banking sector and improve the transparency of its corporations.
Indonesia, bankrupted and propelled into political upheaval by the crisis, now has foreign reserves worth US$42 billion. It plans to repay what it owes the IMF for a multibillion-dollar bailout ahead of schedule.
Still, Asia's rapid economic growth makes it a magnet for inflows of capital seeking high returns -- and that can become problematic.
For one, it's lifted Asian currencies like the Korean won, Thai baht, Philippine peso and Indonesian rupiah against the US dollar, hurting exporters.
It also makes those nations vulnerable to speculative pressures given the huge amount of money chasing investments in emerging markets, driving up stock and property prices as well as regional currencies.
"The problem is that financial markets have become so big and a currency like the Thai baht is so small the market can put it anywhere it wants to," says Andy Xie (
"A small country has a huge problem now," Xie says.
In the weeks leading up to Monday's announcement of foreign investment controls aimed at fending off the inflow of money, Thailand's central bank governor Tarisa Watanagase complained that broad dollar weakness was the key problem.
Others point to China's refusal to let its own currency, the yuan, appreciate faster against the US dollar.
The yuan has gained just 3.6 percent against the dollar since its revaluation in July last year.
Another factor is the so-called "carry trade," which involves heavy yen-denominated borrowing, thanks to Japan's low 0.25 percent interest rate, for investments in higher-yielding countries like Thailand, where the benchmark interest rate is 5 percent.
"Investors just jumped on that as easy money on the table," says Jonathan Anderson, chief Asia economist for the UBS brokerage in Hong Kong.
The conditions made it "very easy and attractive to speculate on the currency, so you get a virtuous or vicious circle, depending on whether you're an investor or a policy maker," he says.
Merida Industry Co (美利達) has seen signs of recovery in the US and European markets this year, as customers are gradually depleting their inventories, the bicycle maker told shareholders yesterday. Given robust growth in new orders at its Taiwanese factory, coupled with its subsidiaries’ improving performance, Merida said it remains confident about the bicycle market’s prospects and expects steady growth in its core business this year. CAUTION ON CHINA However, the company must handle the Chinese market with great caution, as sales of road bikes there have declined significantly, affecting its revenue and profitability, Merida said in a statement, adding that it would
Greek tourism student Katerina quit within a month of starting work at a five-star hotel in Halkidiki, one of the country’s top destinations, because she said conditions were so dire. Beyond the bad pay, the 22-year-old said that her working and living conditions were “miserable and unacceptable.” Millions holiday in Greece every year, but its vital tourism industry is finding it harder and harder to recruit Greeks to look after them. “I was asked to work in any department of the hotel where there was a need, from service to cleaning,” said Katerina, a tourism and marketing student, who would
i Gasoline and diesel prices at fuel stations are this week to rise NT$0.1 per liter, as tensions in the Middle East pushed crude oil prices higher last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices last week rose for the third consecutive week due to an escalating conflict between Israel and Iran, as the market is concerned that the situation in the Middle East might affect crude oil supply, CPC and Formosa said in separate statements. Front-month Brent crude oil futures — the international oil benchmark — rose 3.75 percent to settle at US$77.01
RISING: Strong exports, and life insurance companies’ efforts to manage currency risks indicates the NT dollar would eventually pass the 29 level, an expert said The New Taiwan dollar yesterday rallied to its strongest in three years amid inflows to the nation’s stock market and broad-based weakness in the US dollar. Exporter sales of the US currency and a repatriation of funds from local asset managers also played a role, said two traders, who asked not to be identified as they were not authorized to speak publicly. State-owned banks were seen buying the greenback yesterday, but only at a moderate scale, the traders said. The local currency gained 0.77 percent, outperforming almost all of its Asian peers, to close at NT$29.165 per US dollar in Taipei trading yesterday. The
RSS