Date: Wed, 22 Oct 1997 10:09:20 -0400 From: Louis Proyect <lnp3-AT-columbia.edu> Subject: M-TH: An 'Asian Miracle' Now Seems Like a Mirage October 22, 1997 By SETH MYDANS KUALA LUMPUR, Malaysia -- A businessman pays for a home-remodeling job with his Mercedes. A chauffeur says imported milk powder for his two children now costs more. A real estate agent spends his afternoons sipping iced tea in an upscale mall: nobody is buying. In this proud and surging country, the first twinges are being felt in a sharp economic downturn that has swept through Southeast 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 neighbors -- newly rich with a flood of foreign investment -- have learned that the global marketplace 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 since the summer; then their stock markets followed. 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 monetary 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 neighbors, 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 Southeast Asia's problems are spreading. Monday, both stocks 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 Southeast Asian economies, it was Thailand's that 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 Southeast Asia Business Program 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 here in Malaysia. But private grumbling can be heard about his leadership -- countered by organized demonstrations of support for him. In Thailand, discontent was channeled 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 neighbors, with growth averaging around 8 percent 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 and had 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 percent. Though the slump here is more recent and not as deep as in Thailand, Malaysia's people are beginning to prepare for more difficult times. Manufacturers who import their raw materials know they are going to be hit by higher costs and are beginning to prepare. Shah A. Dadameah, the corporate affairs manager of Caelygirl, a major manufacturer of lingerie, said the answer would be to "get back to basics." "If we have to shut down the air-conditioners, we'll use fans," he said. "If everyone has been buying mobile phones, let's do away with mobile phones." He said he may be forced to "rearrange the furniture" of his company, farming out sewing to local villagers, training workers to perform multiple tasks and producing more fancy, frilly lingerie for big spenders. "Everyone can become a salesperson; even a clerk," Shah said. "They can try to get their rich relatives to buy." People like Shah can see what is happening to their neighbors in Thailand, where the economy has already begun to slow sharply. They have heard the predictions that 120,000 Thai workers could be laid off by the end of this year -- and that as many as two or even three million of that country's workforce of 25 million could ultimately lose their jobs. One of these is Siriporn Promarak, a 40-year-old administrator in a Thai bank whose department was shut down recently. She now sews dresses at home to make ends meet and comforts her sister, who also works in a bank and expects to lose her job soon too. "She does not know which day her big boss will come and say, 'We no longer need you,' " Ms. Siriporn said. "Everyone feels insecure." The prospect of a future like this is particularly crushing in a country as assertive as Malaysia, where billboards proclaim, "The future is here!" One of the proudest and most ambitious of the region's leaders, Mahathir, 71, has led his people on a growth binge. He has built the world's tallest building and is rushing ahead with plans for a multibillion-dollar dam, a new capital city, a new international airport, huge bridges and 10,000 miles of roads. In one of his riskiest economic gambles, he is planning a vast, high-tech "cyber-city" that he hopes will attract businesses from around the world and become the Silicon Valley of Asia. "We may succeed or we may fail," Mahathir said last year. "We may actually be doing the wrong things. But we are not going to just sit back and do nothing. We are going to try, and we are going to try very hard." As long as the money kept flowing in, there seemed no reason to hold back. But when the dollar strengthened against the yen in 1994 and 1995 -- carrying with it local currencies whose value was pegged to the American currency -- the dynamic changed. The costs of imports began to outstrip revenues from exports, and a key economic indicator, the current-accounts deficit, rose to unhealthy levels. Governments failed to take politically difficult steps to bring the situation under control. Then the currency traders attacked, first the Thai baht, then the currencies of Malaysia, the Philippines and Indonesia, all of which had become seriously overvalued. Devaluations followed, throwing the regional economy into turmoil. The Thai government in particular seemed ill prepared to deal with the crisis, with well-connected bankers and businessmen still trying to cut side deals to avoid paying the price for their extravagance. Economists were exasperated when the prime minister suggested that the economy could be saved by opening up more Thai restaurants abroad and popularizing Thai kick-boxing. Furious at seeing his dreams crumble, Mahathir, too, has sent discouraging signals, pointing his finger in seeming pique at Jews, "neo-colonialists" and unidentified "sinister forces" abroad. The prime minister is angriest at the currency traders -- particularly at the American financier George Soros -- asserting that they conspired to punish Malaysia for its economic success. "These people do not like to see the developing countries grow as tall as they are," he said last week. "Malaysia's sovereignty is at threat from such people who hope to colonize us again." Economists dismiss such notions, saying the currency market does not engage in political conspiracies -- indeed, that such behavior would be against its interests. And for speculators to cause an economy serious harm, it must already be sick. "They are the trigger, not the gun," Ms. Lim said of the traders. "You must already be standing on the cliff, teetering and tottering, and they just push you over." Overloaded with suddenly more expensive foreign currency debt, enterprises around the region were plunged into crisis. It is not a unique situation, and most big multinational companies remain committed to Malaysia for the long term. The economy of Mexico fell farther when its peso crashed in 1994, and it recovered within less than two years. "It all looks pretty bleak, but the fact is that these countries are not in terrible shape," said Ms. Lim. "At the worst, they may knock a couple of points off their growth rate this year. Instead of growing at their long-accustomed 7 to 9 percent, they will grow for the next couple of years at 5 to 7 percent. This is not a big deal from a macro point of view." Nevertheless, for people like Shah, the lingerie manufacturer, it will hurt. But he hopes to keep his business afloat using the entrepreneurial tricks he has learned during the boom years. "You scratch my back and I'll scratch your back" has worked in the good times, he said; it's still a good formula. He can extend his billing periods and spread the economic pain among suppliers, distributors and middle men. Perhaps, he said, warming to the subject, he will look for new markets -- South Africa or Russia or South America. "Even the Middle East. Those people, they still have a lot of money." But like Mahathir, who still vows to keep most of his big projects going, Shah is hoping to hang on to some of the trappings of his success. "Maybe one of my children says, 'We have two cars now; why don't you sell one?' " Shah said. But he said he has an even better idea: sell his two inexpensive cars for 100,000 ringgit and buy one new expensive model for 70,000. "I can cut down and still have a luxury car," Shah said happily, "and my neighbors will say, 'Hey, he's still got a luxury car!' " Copyright 1997 The New York Times Company --- from list marxism-thaxis-AT-lists.village.virginia.edu ---
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