The pinch has set in but economists say the real pain for South-east Asia is yet to come, writes Seth Mydans
A businessman pays for a home-remodelling job with his Mercedes. A chauffeur says imported milk powder for his two children now costs more. An estate agent spends his afternoons sipping iced tea in an upmarket shopping mall: nobody is buying.
In Malaysia, a proud and surging country, the first twinges are being felt in a sharp economic downturn that has swept through South-east Asia. Economists say the real pain – the bankruptcies, the rising prices, the job losses – is still to come, and many people here are bewildered about what is happening to them.
“We all believed things were just going to get better and better,” said a well-to-do woman who insisted on anonymity. “Nobody ever stopped to think. This has hit us in the face. We wonder if the Asian miracle was ever there, or whether it was an Asian mirage.”
It is a question that is being asked often these days. In the last few months, Malaysia and its neighbours – newly rich with a flood of foreign investment – have learnt that the global market can take away as quickly as it gives.
With their booming economies weakened by mismanagement and by the pressures of international exchange rates, their currencies have plummeted in recent months; then their stock markets followed suit. Their future growth has been thrown into doubt and their confidence is badly shaken. Foreign investors have fled.
Thailand, the hardest hit, has received a $17-billion bailout from the International Monetary Fund, and there are signs that even that may not be enough. Indonesia, too, has asked the fund to help and may soon be given bitter economic medicine to swallow.
Malaysia has been forced to put some of its grandiose projects on hold, and last week it announced a tightened budget with scaled-down targets for next year. And the Philippines, which has been hurrying to catch up with its neighbours, was left struggling not to follow them into collapse.
Hit first and hardest, Thailand demonstrates most vividly the costs of the downturn: collapsing banks, stalled construction sites, empty new office buildings and half-empty hotels, rising prices, spreading joblessness, an increasingly restive public, even suicides.
Now many fear that South-east Asia’s problems are spreading. This week, both shares and currencies fell from Hong Kong to South Korea to Taiwan, sending economists and politicians scrambling to understand the causes of the contagion.
Clearly some investors are simply spooked and are steering clear of all Asian economies; others may fear that as the cycle accelerates, countries around the region will be forced to raise interest rates to defend their currencies. That could, in turn, slow economic growth throughout Asia and deepen the financial crisis.
Of all the South-east Asian economies, Thailand’s grew the fastest and was most at risk. It borrowed most heavily in foreign currency to finance its growth, indulged the most in vanity projects like four-star hotels, golf courses and ill-conceived business ventures, and extended loans most profligately in an overbuilt property market.
And when currency traders, sensing vulnerability, attacked its currency, the baht, its central bank depleted its foreign currency reserves in an ill-conceived and futile attempt to maintain its value.
“Bad,” said Rajiv Malik, a Singapore-based economist with Jardine Fleming International Securities, in summing up the region’s economic health. “A one-word answer would be just, ‘bad.’ For all practical purposes, for the next year or two this region will be very much down in the dumps.”
Despite the gloom that has settled over the area – along with a noxious smog from vast forest fires burning in Indonesia – most economists still say these countries have great promise and are bound to recover.
“In two years, they’ll be booming, rolling along,” said Linda Lim, director of the South-east Asia business programme at the University of Michigan Business School – provided they take some tough steps to make their economies more efficient.
Each of the affected nations has its own story – the heedless spending of Thailand, the careful management tainted with corruption in Indonesia, the over- ambitiousness of Malaysia, the stirrings of growth in the lagging Philippines.
As the foreign money poured in, all of them, to one extent or another, squandered their new wealth through inefficiency and self-indulgence.
“It’s money plucked from the global economy tree and dumped in here,” said Norani Othman, a research fellow at the Institute for Malaysian and International Studies. “It’s a new form of gambling that parades itself as economic entrepreneurship.” A Western business executive in Thailand, who insisted on anonymity, was even harsher. “It was greed and easy money,” he said. “People forgot that there is no quick way to get rich. You need hard work. You need to focus on issues of human resources, marketing strategies, efficiency. People became arrogant and complacent and fat and inefficient.”
The situation is beginning to have political ramifications.
Prime Minister Mahathir Mohamad retains a strong hold on power in Malaysia. But private grumbling can be heard about his leadership – countered by organised demonstrations of support for him.
In Thailand, discontent was channelled last month into an emotional drive to change the Constitution, and with it the old ways of government cronyism and corruption. Prime Minister Chavalit Yongchaiyudh seems to have spent more energy wrestling with political rivals than dealing with the country’s potential recession.
In Indonesia, where communal riots have shaken the nation for more than a year, President Suharto’s re-election in March still seems assured. But a potential economic retrenchment is likely to touch off further discontent.
And in the Philippines, the slump has hurt the standing of President Fidel Ramos, whose major accomplishment has been the creation of the country’s first burst of prosperity in decades. It had been a heady decade for Malaysia, as for its neighbours, with growth averaging around 8% a year.
“Development – oh, I tell you -damn fast!” Zulkifili Abdul Aziz, an accountant, said as he sat at an outdoor foodstall with the lights from the twin Petronas Towers, the world’s tallest building, twinkling above him. “We’ve all earned money, easy money.”
As recently as May, The Bangkok Post in Thailand gazed south toward Malaysia with stars in its eyes. “It can only continue to be onwards and upwards for Prime Minister Mahathir Mohamad,” the newspaper said. That sunny picture ended when currency traders moved from the baht to the Malaysian ringgit, forcing down its value at one point by 30%. Though the slump in Malaysia is more recent and not as deep as in Thailand, Malaysia’s people are beginning to prepare for more difficult times. – New York Times