Nick Cumming-Bruce in Bangkok
The skyscrapers on Bangkok’s skyline, once a sign of Thailand’s place at the centre of Asia’s boom, are now conspicuous symbols of a shocking and, for investors, unnerving bust.
Typical is the prestige office block overlooking the manicured surroundings of the Bangkok sports club but abandoned, half-built, by a now penniless developer. It casts a long shadow over the club terrace, where the upper crust of society and business used to reflect comfortably on the fortunes delivered by a bull run in property and stocks. Now they swap gloomy tales of an even swifter financial demise.
One contemporary legend relates how the client of a western financial institution opened a meeting with the manager by placing a gun on the table between them. He remarked on the imprudence of any attempt to call in his loan – or their lawyers – retrieved the weapon and withdrew. Desperate times, the Thais are discovering, call for desperate measures.
Nothing shows that more clearly than the decision of obviously reluctant Thai political leaders to call in the International Monetary Fund (IMF). The $16- billion bail-out agreed this week will exact a heavy price: hefty cuts in government spending, a rise in the price of most consumer goods except food -thanks to a big hike in value-added tax .
“It’s going to mean a bloody awful time for Thailand for the next 18 months, two years,” said Hugh Young of Abtrust in Singapore. An American bank representative in Bangkok agreed: “The economy will shrink next year, maybe a couple of per cent. In 1999 it should start to grow again.”
The closure of 42 finance companies last week was a warning sign. From a total of 91 firms, the closures caused pandemonium and panic throughout the financial community, and the public is wondering where the rot will stop.
Nobody is yet sure how drastic the knock-on effects will prove. Once affluent executives are having to rethink holidays abroad and foreign schooling. Rows of half- empty office blocks, unclaimed shop space and sparsely patronised restaurants are already a familiar sight.
`It’s like a neutron bomb,” says a Thai economist. “The buildings and structures are all there but the people are all gone.”
Or going. Nobody is quite sure how hard this will hit employment. “The remarkable thing is how resilient the real Thai economy has been in the face of spectacular official incompetence and corruption,” said one western banker.
“If there is a meltdown of the productive sector and its workers are thrown out, it will take a lot longer for the economy to recover,” warned a Thai analyst, noting that this risked adding social unrest to the country’s worries.
Thailand is nursing close to $90-billion in foreign debt, some $70-billion belonging to private companies. When Mexico hit financial rocks two years ago, its ratio of loans to gross domestic product (GDP) was around 45%. In Thailand it is nearer 125%.
Buoyed by the easy fortunes made by property in the late 1980s, Thai businessmen relied heavily on dollar and yen loans, exploiting low interest rates overseas. Many of the ventures – steel, petrochemicals, oil refineries -were white elephants. Thailand might have avoided the severity of its present woes, western economists believe, were it not for what one described as “a combination of amazingly inept government policies and a state of complete dither”.
As a result, there can be few countries where the arrival of the IMF has been so broadly welcomed.