Australia's geography, and its avid pursuit of markets in Asia, have left it vulnerable to its neighbors' ills

By LISA CLAUSEN

t is far from Asia's turmoil--a mandarin farm in the prosperous Burnett region of southern Queensland--but the economic storms that have ravaged Australia's northern neighbors have touched even this complacent part of the world. Last year, more than 90% of mandarins exported from the area went to Indonesia; this year the market barely exists. Not every Australian industry has been so hard hit, but most have been affected and all fear further damage. Says Burnett mandarin grower Allan Meyer, who wonders about the fate of his 30,000-tree crop: "The bloody honeymoon's over."

Heavily dependent on trade with Asia, Australia could hardly have remained untouched by the collapse of its neighbors' currency and export markets, which ANZ Banking Group chief economist Saul Eslake calls "the most serious regional economic crisis of the postwar era." As well as counting the dollar cost--exports, already at their lowest level in seven years, are expected to fall further in the next three months--the country has had its economic confidence badly shaken. Australia has long pursued the rewards of a place at the Asian trade table. Now it is being forced to ponder the risks. Federal Treasurer Peter Costello last week reflected the nation's growing anxiety: "This is the first time in the last two decades that Asia will not be a stimulus to the Australian economy," he told parliament.

Australia's pursuit of that stimulus has led to reliance as well as profit. In the last decade, the proportion of the country's exports going to Asia has risen by 10 points to 57%. Asia is the source of half Australia's international tourists, and the biggest buyer of its coal, steel, gold, wool, cotton, live cattle and milk. Now some of these markets are in doubt. "Just when we've got a close relationship with Asian countries, suddenly they've seemingly collapsed," says Shane Oliver, chief economist at insurance giant AMP. Tourism, Australia's largest employer and its biggest foreign exchange earner, is expecting its worst year in a decade. In Kuala Lumpur, travel agent Jenny C. Chuah says the plummeting local currency has almost doubled the cost of seven-day tours to Australia, pushing them beyond the reach of most Malaysians. "There have been retrenchments, pay cuts, everything," she says. "A lot of travel businesses have closed down; they can't stand it."

Australia's live cattle trade has been similarly damaged. By this time last year, 35,000 head of cattle had been sent to Indonesian feedlots; this year, none has gone. Several shiploads bound for Indonesia when the crisis deepened last October were diverted en route to other markets after orders were canceled. "Quite a number of our good Indonesian clients are particularly hard hit," says Chris Hughes, managing director of Cairns-based livestock export firm Australivex. "Some of them are totally insolvent and won't operate again." Wool producers too are vulnerable. Prices have fallen 9% since January, enough to stir anxiety in an industry only beginning to recover from price slumps three years ago.

A few Australian food exports seem immune to the worst of the market's ills: milk, because its main Asian customer, Japan, has not been deeply affected, and wheat, which remains a necessity. "People still need to eat," says T.C. Toh, manager of the Citra flour mill in Cilacab, south central Java, which still buys 30,000 tons of wheat a month from Australia. "Being the nearest to us, Australia has a bit of an advantage."

But gold--Australia's biggest export to Thailand and Singapore in 1996-97--has been hit hard. Until six months ago, Bangkok jewelry designer Parinya Tumwattana bought 2kg of gold each week from Australia's Perth Mint. Now it's rare for him to buy more than 1kg. "People used to buy without blinking their eyes," says Tumwattana. "Now the good times are gone."

For many Asian families, that has meant the end of plans to educate their children in Australia. Ninety percent of overseas students at the country's universities come from the region, and offers to defer tuition fees for those in difficulty have failed to stop the tide ebbing: the numbers of visas issued to Korean and Thai students before the first semester began in February were down 44% and 27% respectively. Such declines could mean hundreds of millions of dollars in lost national income.

And, with every loss, stir fresh doubts about the trade path Australia has chosen. Says Bruce Baird, managing director of the Australian Tourism Council: "Not nearly as much attention has been given to Europe and North America, and I think we have to change that emphasis." But others hold to the notion of geography as destiny. "In the end, what choice does Australia have?" says Andy Xie, a Hong Kong-based economist for global bank Morgan Stanley. "For growth, in the end, it's got to be Asia. There's not much else you can do." ANZ's Eslake agrees: "To a significant extent, Australia's economic future is bound up with that of the region, and there's not too many ways around that."

There are other imperatives too, not least diplomacy and defence. Says Alan Dupont, director of the Asia Pacific Security Program at the Australian National University's Strategic and Defence Studies Centre: "The greatest concern is that major political instability in Indonesia may spread not only to Australia but throughout the region." But some foresee stronger ties emerging from the crisis. Says John Wotton, chairman of the Australian Business Group in Korea: "We may not be able to conclude business there right now, but the time to really cement relationships is in times of difficulty."

Few financial observers doubt that those times will pass. "The future prospects in Asia are very good," says Richard Cooper, a former U.S. Under-secretary of State for Economic Affairs and a Harvard professor of international economics. "Perhaps not as bright as the last decade...but Asia is a good bet in the long run."

Some Australians have already laid their wager. In the Adelaide hills in South Australia, Grant and Carol Paech have lost several Asian orders for their Beerenberg bluegum honey and jams, but are determined to maintain links with their former customers. "We still communicate with these people, and in a few years' time it might be different." Some entrepreneurs in Asia, too, are optimistic. Despite recent poor sales, Seoul textiles manufacturer Insung Kim, an importer of Australian wool, says: "We are collecting our strength again to overcome these problems and we're confident we can do that in one or two years."

Australia will be hoping he's right.

--With Reporting by Tim Blair and Susan Horsburgh /Sydney