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BUSINESS | FEBRUARY 9, 1998 VOL. 151 NO. 6 |
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Davos Asian Debate In the midst of crisis economic leaders focus on the long term By CHRISTOPHER REDMAN /DAVOS
Percy Barnevik, Chairman The biggest negative, often underestimated, is that these East Asian export machines could be tempted to overwhelm us with low-price goods. We could see chemicals being offered at a third the current market prices. That would be bad enough, but it gets worse: when the importing countries react to that onslaught, we could be opened up to protectionist pressures. For that reason I hope we don't see crazy, price-destructive moves. I hope they show some restraint so we don't overreact. On the positive side, if you know what you want in Asia, you can pick up real bargains. That depends on having a belief in Asia--and I do. This is a financial, not a fundamental, crisis. The people of these countries save money, and they believe in education. I remain convinced that the next century belongs to Asia.
Chris Kiriubi, Chairman The IMF and the World Bank told us to copy the Tigers--that they were the ideal models for development. Who do we copy now? The only reason to be optimistic is that perhaps this will serve as a lesson for Africa. Governments will see the cost of corruption in Asia. Asia's problems will affect all countries in Africa. Fund managers who invest in emerging markets will think twice now before investing in our markets. We are at the tail end of the global economy, but it will affect us. Already my sales in East Africa of products like ballpoint pens and cosmetics have fallen 20%.
Ronnie Chan, Chairman You need two things for long-term economic success: solid financial structures and good management. In Asia only Singapore and Hong Kong have that. But Singapore will have a tough time because it depends heavily on its Southeast Asian neighbors. Hong Kong is better positioned because it relies more on China, which has avoided the financial excesses of other Asian nations. We're going to have a rough two or three years in Hong Kong as high interest rates squeeze many of our businesses. But we have no choice. The fact that our currency is pegged to the U.S. dollar is a major reason for investor confidence in Hong Kong, so we have to keep that peg. But in six or seven years, I hope, the Chinese renminbi will be a hard currency to which we might peg our dollar.
Yoshihiko Miyauchi, President Up until now [Prime Minister Ryutaro] Hashimoto concentrated on administrative reforms, but along with pressure from the U.S. the Japanese business community has been pushing for more market-oriented reform. At the initial stage of the crisis, Hashimoto's cabinet ignored advice on the need to stimulate the economy, so now they can't tell the public that they have changed policy. But a new Finance Minister can say, "We need a new policy," and Hashimoto can do so without losing face. It's another act in the Kabuki play. We narrowly escaped a great crisis. We are lucky the U.S. and the IMF took quick action.
Roberto Romulo, Chairman The telephone business is probably one of the least impacted, because over 50% of our company's revenue is dollar-based, from overseas telephone calls. Some other businesses in the Philippines are in trouble, though. You cannot cope with 27% interest rates--that's what it is there at this point. After 30 years of IMF tutelage we are indeed better off. But we have to continue with our reforms and make sure we don't backslide.
Earnest Deavenport, CEO Labor costs are less important in the chemical industry than electronics, so we don't expect much impact from the Asian crisis for now. We have just finished a new plant in Malaysia and are two-thirds finished with one in Singapore. It may be true that the problems in Asia will reduce demand for the consumer goods that our chemicals go into, but Asia remains fundamentally strong. And in the long term, this whole thing may be good news. A new sense of realism has set in.
James Onobiono, President It will take six months or a year to see the impact on markets in which we are competing. Perhaps we will feel the effect of devaluation of foreign currencies. The benefit we will get is that investors who are leaving Asia will look for other opportunities. Africa now has a growth rate of 5% and could be one of those opportunities. Things are improving in Africa--privatization, fiscal adjustment, improved governance, and increased stability all make it more attractive. The lesson we have learned from Asia is to keep all of the major economic indicators in balance, and not to let our currencies get overvalued or our budgets run large deficits.
Hanna Gronkiewicz-Waltz, President We run a trade deficit with the East Asian region, and these countries will of course become more competitive now. But our trade with these countries is minimal, so trade impacts shouldn't be a major factor for us. We did see some impact on our stock market, where some of the same foreign investors who were exposed in East Asia closed their positions to lock in [offsetting] profits. It will take a while before it becomes clear whether international capital will back off widely from emerging markets as the result of East Asia or redirect funds to places like Central Europe.
Ronald Skates, President and CEO Asia only accounts for a small part of our business, but it has been very profitable, so any problems there will have a disproportionate effect. We've had no major problems so far, but in Korea, where we've got a very strong business, the banks are not releasing letters of credit. It's not going to tank our business, but it will hurt our profits. In Japan, it seems that businessmen have called a time out and are reassessing the state of the overall economy. The reality is now starting to sink in, but the question is will they have the flexibility to get out? Overall, I don't think Asia will make a quick recovery.
Dionisio Garza Medina, Chairman and CEO We are a conglomerate, so for us the impact is diverse. We have two areas of business: the global, including steel and petrochemicals, where we compete with products from around the world, and the other local: telecommunications and food, for example. The local ones are the easy ones, because the impact there will come through a reduction of growth in the Mexican economy. We were expecting 6.5% growth, it will now be more like 5%--not really that noticeable. As for the international businesses, we already notice some impact: an effect on prices, the dumping of some products coming into Mexico, such as steel, some types of petrochemicals, and also some types of garments. So we expect our operating cash flow to be affected, but it will not be by as much as the stock markets have indicated.
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ust how interconnected is the new global economy? Last week, as
Asia's financial flu continued to take its human and economic
toll, European stock markets were hitting record highs. And
despite Deutsche Bank's startling announcement that its 1997
profits would be hit by a $780 million set-aside to cover
possible loan losses in Asia, the stock price of the world's
third-largest bank actually increased as investors focused on
promises of restructuring. What's going on? When global business
leaders gathered in Davos, Switzerland, last week for the 1998
World Economic Forum, trying to make sense of the Asian crisis
was the order of the day--after speculating about Bill Clinton's
survival prospects, that is. Like El Nino, the Asian debacle
will clearly have a negative impact on the global business
climate in the near term. But TIME's Davos team talked with a
number of CEOs who are looking beyond the current ripples and
seeing long-term opportunities along with huge risks. Some of
their insights: