It appears that Asia's bad times are over. Time for celebration? No, not yet. Whatever lessons might have been learnt and fingers that were burnt during the Asian crises have been forgotten.
As it turns out, the emerging consensus that Asia's economies have turned the corner from bust to boom is based upon an incomplete picture. This belief has been boosted by estimates from the Asian Development Bank (ADB) that predict the region will outpace the rest of the world for the second consecutive year with about 6.2 percent economic growth this year. That is nearly the same rate as 1999 but almost triple the regional GDP growth rate experienced in the depths of the slump in 1998. In its report, the ADB attributes this rapid growth to increased public-sector spending, falling interest rates and strong exports to the US. South Korea was the top performer with growth of over 10.5 percent last year. This represented an abrupt reversal of a contraction of 6.7 percent in 1998. Thailand's pace of growth is expected to increase to 4.5 percent in 2000 from 4.1 percent in 1999. But all this good news does not provide a clear picture of the depth of the remaining problems in East Asia's crisis economies. While the gains may be encouraging, some economies are suffering from deflation due to industrial over-capacity (China and Japan) while others have massive bad debt problems (Indonesia, Korea, Malaysia and Thailand). Political uncertainty plagues Indonesia and the Philippines while China's bellicose outbursts toward Taiwan are an unwelcome source of uncertainty. Amidst all this, Indonesia and Thailand have attracted less foreign investment than pre-crisis levels.
As it turns out, much of the good news coming from Asia's economies is the combination of happenstance and luck arising from forces outside of their control. Although some steps have been taken toward financial and corporate restructuring, too little has been done to reduce high levels of nonperforming loans or to restructure corporate debt. Many countries are now facing the burden of growing fiscal deficits. And all of this is complicated by the reluctance to change the political culture that shaped many of the policies that contributed to the crises that began in 1997. The costs of the ongoing banking rescues provide an alarming picture. For example, Thailand's nonperforming loans (NPLs) have improved from 67 to 38 percent of total loans. However, this amounts to 54 percent of its GDP. Of the total loans in Indonesia's banking system 82 percent are nonperforming such that the ratio of NPLs to GDP is 61 percent. The ratio for Malaysia is 15 percent and for South Korea 12 percent. Attempts to move beyond a dependency on foreign trade for growth are hampered by local conditions.
Despite healthy deposit growth, lending by most Asian banks remains low as they seek to conserve their remaining capital values. Their reluctance to take on new commercial credit risk is a threat to any progress towards recovery. Then there is the relentless problem of endemic poverty. Asia has twice as many people living in poverty as the rest of the developing world combined. Until local capital markets become more efficient, the absence of vibrant domestic sectors will hinder attempts at sustainable growth. All these problems could be compounded if there is an unexpectedly heavy landing of the US economy. America remains the largest buyer of Southeast Asian goods and accounts for more than 20 percent of exports from Thailand and Malaysia and 30 percent from the Philippines.
Although there are improvements in balance-of-payments numbers and greater stability in the region's currencies, taxpayers face huge bills to repay government funds used nationalizing and/or recapitalizing banks. Meanwhile, consumers face increasing employment uncertainty and businesses face sluggish domestic demand while they remain burdened with heavy debt-to-equity ratios.
An initial revival in international investor interest in regional stockmarkets sent prices soaring by more than 25 percent in dollar terms. However, reality checks led the exchanges in Bangkok, Jakarta and Manila to crash back to earth. Seoul's bourse is languishing, and Hong Kong's index seems to be rising but has had erratic rises and falls. The volatility on stock exchanges and the uncertainty of currency values makes investing in much of East Asia more like a casino than an orderly market. Increased liquidity and emotions are boosting Asia's thinly-traded stockmarkets while due diligence is falling victim to irrational exuberance. Meanwhile, foreign investments in Thai stocks have fallen by a net US$700 million over the past five months.
Most of the additional liquidity for investors to play the markets in the developing and developed world arose from interest rate cuts that were begun by the US Federal Reserve and the European Central Bank in 1998. During that time, the Fed's lowering of interest rates helped remove downward pressures on the region by narrowing spreads in international currencies. At the same time, increased dollar liquidity also encouraged a search for portfolio plays and direct investments in response to fire sale prices in parts of East Asia.
Unfortunately, return inflows of foreign portfolio capital and improved economic numbers induced local policymakers to defer much-needed structural reforms. These reforms include the implementation and reliable procedure of bankruptcy laws, allowing foreign control of domestic enterprises, and less political involvement in how investment funds are allocated. Such steps will take many years to implement and will require the passing of more years before they bear fruit. Now that interest rates are rising again and a slowdown in the US is looming on the horizon, due diligence and demands for transparency are more urgent. Unsurprisingly, foreign capital inflows to East Asia are slowing or reversing. A clear-headed assessment of the conditions of the Asian crisis economies provides few convincing reasons to indicate that they have recovered or are on now on the path of sustainable growth.
Christopher Lingle is Global Strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
Since the Russian invasion of Ukraine in February 2022, people have been asking if Taiwan is the next Ukraine. At a G7 meeting of national leaders in January, Japanese Prime Minister Fumio Kishida warned that Taiwan “could be the next Ukraine” if Chinese aggression is not checked. NATO Secretary-General Jens Stoltenberg has said that if Russia is not defeated, then “today, it’s Ukraine, tomorrow it can be Taiwan.” China does not like this rhetoric. Its diplomats ask people to stop saying “Ukraine today, Taiwan tomorrow.” However, the rhetoric and stated ambition of Chinese President Xi Jinping (習近平) on Taiwan shows strong parallels with