Soaring stock markets and healthier economic indicators are fueling optimism that the recovery starting to lift Southeast Asia out of its worst recession since World War II may have legs and strength.
But few economists are willing to declare the patient or its disease cured. They say the recovery could unravel if governments fail to follow through on reforms. And they worry that a fast recovery could dilute the sense of political urgency that forced governments to take action in the first place.
"There is a danger of complacency now," said Bruce Gale, a Singapore-based analyst for a political and economic risk consultancy. "A feeling could set in of, 'Oh, we've done enough. We don't need to push ahead with any more reforms.'
"Look at the Philippines," Gale said. "Their attitude seems to be, 'We've already taken our economic medicine.' The Philippines is just sitting back now and not moving ahead with further reforms to consolidate its position."
Still, the region's mood of growing optimism was particularly noticeable at the Assn. of Southeast Asian Nations' regional forum here this week.
Last year's meeting was gripped by gloom over worsening economic conditions. This year, with economies on the mend, the focus shifted to regional security concerns, as one government after another spoke in upbeat terms about the success of their economic reforms and the pace of recovery.
"We are encouraged by signs that the worst is over," U.S. Secretary of State Madeleine Albright told the forum's foreign ministers.
So, to be sure, are 500 million Southeast Asians who saw their economic miracle destroyed almost overnight--and are now holding their breath that the recovery will carry the region back to prosperity.
Whatever the revival's staying power turns out to be, the social toll of two years of economic turmoil has been tremendous--20 million out of work in Indonesia, a middle class devastated in Thailand, hunger in the Philippines. And everywhere, a widening gap between rich and poor and millions of people who have had to learn to live with uncertainty.
"Business was down to a trickle when the peso plunged," said David Limsico, 44, owner of a small restaurant in Manila. "So I modified my menu, offered special meal packages. Last year I got back to the break-even point. This year I'm nearly back to pre-crisis levels. And I've kept the restaurant alive without laying anyone off. I think we'll be OK."
'Sailing Toward High Seas Again'
Philippine President Joseph Estrada struck an even brighter chord Monday in his state of the nation address. "Last year," he said, "we were struggling to keep ourselves from sinking. Today we are sailing toward the high seas again."
Indeed, in the last six months, currencies throughout Southeast Asia have strengthened and stabilized. Interest rates have fallen. Inflation is down. Consumer confidence is up. Exports are slowly rising. And stock markets have turned in some of the best performances in the world, with Indonesia's up 50% this year, Singapore's 49% and Thailand's 30%.
"The run-up in the markets certainly indicates that investor confidence is returning," said Anand Aithal, an analyst with Goldman Sachs in Singapore. "Foreign money was the first to come back into the markets. Then the local money.
"Reform doesn't always come as smoothly as we'd like, but the important thing about the reforms happening now is that they are permanent."
Although the crisis led to a change of governments in Thailand and Indonesia, riots in Jakarta and political instability in Malaysia, participants at the ASEAN forum were heartened that the worst-case scenarios feared by some in 1997 never happened.
Indonesia did not disintegrate, although 1,200 died in Jakarta's riots. There was no violent backlash against the West, even if the International Monetary Fund did come in for plenty of criticism for prescribing the wrong medicine with its Asian bailouts. The countryside, where the majority of people live, fared much better than the cities, where the violence and economic despair were centered.
Nonetheless, the crisis did jolt governments into making long overdue reforms, which, combined with a strong U.S. economy that pulled along its Asian trading partners, have helped to lift the region out of recession. Most analysts say the initial reforms represent just the beginning of the economic restructuring Southeast Asia must do to return to prosperity.
Thailand, for instance, set up its first bankruptcy court last month. Now the question is whether the 60 judges will do their job and declare anyone bankrupt.
"The problem with the markets is that confidence could evaporate as quickly as it appeared, and then where are we?" said Gemi Supriyadi, 33, a Jakarta importer-exporter of agricultural commodities. His complaint: Singaporean companies have been rejecting his letters of credit because the Indonesian government still hasn't gotten around to forming a proper board to guarantee such letters.
Many skeptics say that the rising stock prices reflect an input of government money more than a deep-rooted recovery in which factories start up and jobs are created. They add that Southeast Asia remains vulnerable--to the direction of economic conditions in the U.S., to Japan's continued troubles, to China's deepening uncertainty.
Additionally, Southeast Asia is burdened with indebted corporations and insolvent banks, both serious obstacles to reclaiming the robust growth that the region enjoyed before the Thai baht was devalued in July 1997, triggering the crisis. The rate of nonperforming loans--bad debts--at Indonesian banks stands at 75%. The rate is 44% in Thailand and 19% in Malaysia.
"The implications of the crisis' social impact, such as the gap between rich and poor, are still unfolding," said Jungsoo Lee, chief economist for the Asian Development Bank in Manila.
"True, countries are recovering much faster than expected and there are positive indicators, but there is still a lot of risk and uncertainty, and it's a bit hard to see Asia being out of the woods yet."
A Prediction of Modest Growth
Many of the indicators of recovery are small ones, such as Vietnam Airlines reporting last week its first quarterly increase in passengers and cargo in two years, or a food-stall owner in Jakarta who thinks he can soon afford to send his 6-year-old daughter back to school.
On a broader level, the Pacific Economic Cooperation Council, a Singapore-based nongovernmental agency, sees modest growth returning to most of Southeast Asia this year. Thailand, the Philippines, Malaysia and Indonesia all experienced negative growth in 1998.
What the crisis did not destroy was the remarkable spirit, confidence, resiliency and industriousness of the Southeast Asian people.
Two years ago, Sirivat Voravetvuthikum, who has a business degree from the University of Texas, was chief executive of one of Thailand's top brokerages. A multimillionaire, he borrowed heavily to finance several large development projects, thinking good times would last forever. Almost overnight the sudden recession wiped him out.
To survive, he started making sandwiches and selling them on the streets of Bangkok. Today he is still peddling sandwiches. A court, he says, will soon decide if he must declare bankruptcy and sell his remaining assets. But at least the sandwich business is going well.
"Customers bought their first sandwich to help me," said Sirivat, 50. "But they bought the second, third and fourth ones because I make the best sandwiches in Bangkok and because I am honest with my customers."
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Keeping the Momentum
Southeast Asia has made a start on economic recovery, but the region remains vulnerable to its own weaknesses, China's deepening uncertainty and Japan's continuing troubles.
Recovery depends on maintaining political stability, the return of ethnic Chinese investment and rebuilding the reeling banking system.
The critical question is whether foreign investors see it as an attractive destination in light of the country's capital controls and political uncertainty.
The country has made progress on banking reform, but the strength of government reform efforts is a question mark and education system remains weak.
It's been praised for deregulating finance and helping industry cut costs, but still remains vulnerable to the fortunes of its struggling neighbors.
If succeeded in attracting foreign technology investment and in imposing reforms, but fears of cronyism and complacency abound.
How key stock markets in East Asian nations have fared so far this year:
Country: Percent change
South Korea: +68%
China (Shanghai): +39%
Hong Kong: +31%
U.S. (S&P; 500): +11
Note: Figures are for most widely quoted index in each market.
In gross domestic product for selected countries:
Country 1998 GDP growth 19999* 2000* China +7.8% +7.0% +8.2% Hong Kong -5.1 -1.3 +0.2 Indonesia -13.7 -4.0 +1.0 Malaysia -7.5 +1.8 +3.8 Philippines -0.5 +1.5 +3.8 Singapore +1.5 +0.9 +2.5 Taiwan +4.8 +4.8 +5.5 Thailand -8.0 +2.0 +3.5
Sources: Morgan Stanley Dean Witter, Bloomberg News, Times research