The Asian Contagion

A country-by-country look at the economic crisis that has swept Asia, and the challenges nations face in restoring growth. (Stock market and currency changes are since Jan. 1. Currency changes versus U.S. dollar).

THAILAND

* Currency decline: -36%

* Stock market decline: -52%

* Population: 60 million.

During the export boom of the early-90s, Thai banks flush with cheap foreign capital lent heavily to domestic borrowers, fueling a real estate bubble. Imports surged. Political corruption further weakened the economy’s underpinnings. By 1996, with export growth slowing, the country’s financing deficit with the rest of the world soared. Speculators’ attacks on the Thai currency, the baht, caused its collapse on July 2--triggering the current Asian crisis. In return for a $17.2-billion international bailout, Thailand will cut public spending and clean up the bad-debt-laden banking system. But the country’s long-term challenge is modernizing its poor infrastructure and revitalizing exports in the face of growing competition.

MALAYSIA

* Currency decline: -28%

* Stock market decline: -56%

* Population: 21 million

Since 1980, Prime Minister Mahathir Mohamad has turned the country from a giant plantation to a high-tech export platform. Yet in the wake of Thailand’s economic plunge, Malaysia’s currency also sank, causing Mahathir to attack foreign investors. While Malaysia has not sought international aid, Mahathir is trying to shore up the economy by raising import tariffs and promoting exports. But his rhetoric against foreigners has pummeled Malaysia’s markets, and raised questions about the country’s ability to lure new capital.

INDONESIA

* Currency decline: -35%

* Stock market decline: -37%

* Population: 200 million

President Suharto’s two decades in power have been marked by dramatic growth in this sprawling archipelago, particularly in export industries. Still, Indonesia’s currency and markets plunged soon after Thailand’s fall, as investors focused on the country’s heavy private foreign debt burden. A $23-billion international aid package has been granted to stabilize the country’s finances, and in return Indonesia has agreed to close 16 banks, slash spending and open its market more to foreign competition. But whether Suharto’s government has the will to sever tight ties with its banks--and stick with austerity measures in the face of potential civil unrest--is unknown.

PHILIPPINES

* Currency decline: -24%

* Stock market decline: -44%

* Population: 72 million

A 1992 reform program successfully jump-started an economy crippled by widespread corruption and bad-debt-laden banks. Even so, the Philippine peso and stock prices have followed other markets sharply lower. The Philippines, like its Asian peers, faces the major challenge of restoring fast growth to create badly needed jobs.

SOUTH KOREA

* Currency decline: -27%

* Stock market decline: -37%

* Population: 46 million

The world’s 11th-largest economy, South Korea presents a bigger challenge to global financial authorities than all of Southeast Asia combined. Years of badly directed investment by the country’s chaebol conglomerates have resulted in a vicious circle of bankruptcies, bank loan defaults, soaring interest rates and a deeply devalued currency. Of $110 billion in private-sector foreign debt, nearly $70 billion is due within 12 months, a sum that forced the government to appeal to the International Monetary Fund for help. The IMF is expected to demand bank closures, corporate mergers and layoffs. But unions are expected to launch a major battle to protect wages and jobs, threatening public support for needed reforms.

JAPAN

* Currency decline: -10%

* Stock market decline: -14%

* Population: 126 million

The 1990 collapse of Japan’s “bubble” economy left the banking system burdened with bad loans now conservatively estimated at $220 billion. Japan, still rich by any measure, hoped to grow its way out of the bad-loan morass, but an economic surge in 1996--mainly led by the export sector--was followed by another slowdown last spring, as income taxes were hiked. That raised new fears about banks’ health. Those fears were magnified by the recent failure of two Japanese banks, and the failure of the country’s fourth-largest brokerage. While analysts believe that the Japanese government’s willingness to finally clear away the bad banks is a healthy sign, the bank failures have spooked depositors. More open competition throughout the economy could give a renewed boost to growth. But while many Japanese support deregulation in principle, when it comes to their own jobs they fear the fierce competition it implies.

SINGAPORE

* Currency decline: -12%

* Stock market decline: -25%

* Population: 3 million

This city-state, a high-tech and shopping center for Southeast Asia, has been an isle of relative stability. Interest rates remain low and export growth strong because of a rebound in the electronics industry. But rising costs pose a challenge to long-term growth.

HONG KONG

* Currency decline: nil

* Stock market decline: -22%

* Population: 6.3 million

Still Asia’s premier financial hub, rich Hong Kong, now in Chinese control, survived a speculative attack on its currency in October thanks to its massive financial reserves. But a jump in interest rates threatens the real estate sector. The government’s long-term challenge is protecting the city’s status as a financial services center for Asia, and bringing sky-high real estate values down in a “soft landing” rather than a crash that could devastate its banks.

TAIWAN

* Currency decline: -14%

* Stock market gain: +12%

* Population: 22 million

Despite boasting one of Asia’s strongest economies--thanks to high-end exports in electronics and other value-added products--Taiwan, too, succumbed to a currency devaluation in recent months. But the damage to the economy has been modest. The country’s foreign-currency reserves of $83 billion are the world’s third-largest. The big worry about Taiwan is its long-term relationship with China, which sees unification as inevitable.

CHINA

* Currency decline: nil

* Stock market decline: -24%

* Population: 1.2 billion

China remains a poor country on a per-capita basis, despite its rapid growth. It has heavy external debt and a weak banking system. Many unprofitable state-owned firms are kept alive only by loans from state-owned banks that are unlikely ever to be repaid. But foreign strong investment inflows means this is not an immediate problem. Reform of state enterprises so that they function more like profit-seeking corporations is a key government goal. That will require mass layoffs and a banking system that makes decisions based on economics, not politics. For now, China’s strength is its low-cost export sector, and its currency is safe because it is only partially convertible.

Source: Times research