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ASIA | MARCH 9, 1998 VOL. 151 NO. 9 |
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So Where's the Boom? Asians were betting that an export surge would lift their battered economies. It hasn't happened yet By RAHUL JACOB /BANGKOK
Things weren't supposed to develop like this--and they didn't last time. In the year after the peso devaluation of December 1994, Mexico's exports soared 34%. True, Southeast Asia is chalking up huge trade surpluses. But that's mainly because domestic demand is sinking, a trend that could choke future growth. As Thailand's Finance Minister Tarrin Nimmanahaeminda told TIME: "There is deep concern that a sharp reduction in imports may lead to more negative growth in the economy." The problem is that devaluation is a double-edged sword: it may make exports cheaper, but it also raises the cost of imports. And the region's manufactured exports require large amounts of foreign raw materials and other components. Thailand's textile and garment industries, for example, import 80% of their raw materials. So a massive depreciation in a country's currency doesn't automatically translate into a similar reduction in exporters' costs. To make things worse, propping up currencies has sent interest rates soaring in Thailand and Indonesia, and many of their banks aren't extending credit at any price. Brazilian companies supplying leather to Indonesia's footwear industry, for instance, now accept only guarantees from foreign banks: they evidently fear that local banks could go bust any time. In Indonesia, arranging financing for imported materials is getting harder every day, and the rising political risk isn't helping. "Letters of credit are usually for a three-month period," says an electronics exporter, "but no one knows what will happen in Indonesia in three months' time." Pande Silalahi, a Jakarta economist, worries that the inability of local exporters to obtain credit to buy raw materials means it will be months before their factories are humming again. By then, he notes, their customers will have found other suppliers. To keep things moving, trading companies find themselves shouldering new responsibilities. William Fung, who heads the big Hong Kong trading firm Li & Fung, was astonished last September to see that his company's suppliers in Indonesia were raising rather than dropping prices after that country's devaluation. Reason: they anticipated higher interest rates and raw materials costs. By January, they couldn't obtain the letters of credit they needed to buy imported raw materials like yarn and textiles, even when they had confirmed export orders. So to get its Indonesian suppliers back on their feet, Li & Fung is now buying their raw materials for them. "For exporters, there was euphoria in the air six months ago," says Fung. "The reality is it hasn't happened. The financial crisis has impacted exports negatively, not positively." The phenomenon has the makings of a vicious circle. Thailand, for instance, imported 47% less in January than it did a year ago. And most of Thailand's imports come from the rest of Asia. Indeed, Asia's major customer is itself. Japan, the biggest buyer of them all, has so far declined to stimulate domestic demand significantly so as to suck in more imports. "We had planned a big export expansion to Indonesia and Malaysia," says Apsushi Shinoda, finance director of auto parts maker Denso Thailand, "but they are in the same situation." Denso hoped to export goods worth $17 million in 1998 but has had to reduce that target to $5 million because neighboring markets are in such a bad way. Because Asia is now its own sickest customer, the region's comeback will be more difficult than Mexico's. That country was lucky to have a big, healthy economy at its doorstep. Mexico's rebound was hastened by the army of U.S. companies that set up plants across the border to take advantage of the North American Free Trade Agreement. Says Finance Minister Tarrin: "Had Thailand been an isolated case like Mexico, we would have been able to trade our way out of the problem. But our neighbors have seen an almost equal depreciation of their currencies." Stability has returned to the region's battered currency markets in recent weeks--the baht has appreciated 15.5% and the ringgit 10.7% since the start of February. The turnaround in sentiment, if coupled with a speedy recapitalization of the region's banks, could see exporters getting the money they so desperately need. But if the promised export rebound doesn't happen soon, it will be some time before anyone is talking again about the Asian miracle. --With reporting by David Liebhold/Jakarta [BOX] WHAT SILVER LINING? Export Growth GDP Growth in dollars* Forecast '98 INDONESIA 4.6% -9% MALAYSIA -11% 2% THAILAND -3.3% -8% * Monthly data, year-on-year Source: Morgan Stanley Dean Witter
--With Reporting by David Liebhold /Jakarta |
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he Asian financial crisis was supposed to have a silver lining:
booming exports. With their currencies flattened by last
summer's devaluations, the region's economies were expected to
take advantage of their new price competitiveness--and watch
exports soar. It hasn't happened. Exports in U.S.-dollar terms
for December were actually down--by 11% in Malaysia and 3.3% in
Thailand, two countries whose currencies were among the
hardest-hit. In Indonesia, where the rupiah has suffered a 75%
decline--by far the region's steepest--exports were up only 4.6%
in November and the numbers for the past few months are thought
to be worse.