Banyan: Bad memories

Nguồn tin: nguontinviet.com

YOU can never step in the same river twice; but it can look hauntingly familiar. So it is not surprising that as Asian currencies and stockmarkets have tumbled lately, investors and commentators have evoked the spectre of the financial storm of 1997-98. That crisis saw first Thailand, then Indonesia and South Korea turn to the IMF for bail-outs. It devastated regional economies and in Indonesia toppled the 32-year Suharto dictatorship. The Philippines and Malaysia limped through badly injured. Now market jitters around the region are again proving contagious, and will worsen as fears grow about the consequences of possible American-led military action in Syria. Nevertheless, the river is transformed, and less likely to sweep the unwary away.

Of course, similarities to the months before the crisis in 1997 are striking, not least because Indonesia, Malaysia and Thailand seem at risk again. In 1997, as now, American monetary policy was a preoccupation. In March that year the Federal Reserve raised interest rates. Coupled to the strength of the dollar, which by the middle of 1997 had risen by 30% against the yen since early 1995, this sucked capital away from emerging markets. Now a stronger dollar, and the mere threat of higher interest rates as the Fed ponders “tapering” its massive bond-buying programme, attracts money back to the perceived safety of rich-world assets.

Then as now, export growth in many Asian countries was sluggish. And both slowdowns could be attributed in part to China—though for very different reasons. In the mid-1990s, China was establishing itself as the world’s factory. Its exporting prowess was eating away at the market share of countries that had industrialised earlier: not just the “tigers” of Hong Kong, South Korea and Taiwan, but places like Malaysia and Thailand, too. Sixteen years later, China’s phenomenal growth has established it as the region’s most important market in its own right: it is the biggest destination for exports from Australia, Indonesia, Japan, Malaysia, South Korea, Thailand and Taiwan. So slowing growth in China—even the relatively gentle deceleration seen so far—has a big impact in its regional backyard.

Another parallel with 1997 may be that economic success has bred a certain hubris. Years of soaring growth in much of Asia in the early 1990s were seen not in part as an unsustainable boom relying on undervalued currencies, but as a birthright. They were even seen, by some, as proof of the superiority of “Asian values” of thrift, hard work and discipline. Similarly, the region’s navigation of the global slump of 2008-09 relatively unscathed led to complacency. Indian and Indonesian policymakers in particular argued that, so sound were their countries’ fundamentals, that they could defer necessary structural reform until after the next elections (due next year). When trouble loomed the first reaction in both countries, as in the late 1990s, was to blame the outside world, and in particular American policy.

Also as in 1997, however, countries like India (largely unaffected in 1997-98) and Indonesia, with big current-account deficits, remain vulnerable to a loss of foreign confidence. In India, the value of the rupee has fallen to record lows against the dollar. In Indonesia, the country worst-hit in 1997-98, policy measures announced on August 23rd, such as tax breaks for exporters, failed to stem the slide in the currency, the rupiah. The country’s foreign-exchange reserves have fallen by 20% in the past two years.

Of the countries that suffered financial crashes in 1997-98, Malaysia, the Philippines, South Korea and Thailand have all been running current-account surpluses in recent years, in contrast to their deficits in the 1990s. Yet the Malaysian ringgit, Philippine peso and Thai baht have also weakened in recent weeks. This hints at the kind of contagion spreading panic in 1997. Even the Singapore dollar has weakened against the American one.

For all that, the region is now in much better shape. No longer are its currencies lined up like coconuts in a fairground shy, waiting for hedge funds to take pot shots. In 1997 most were more or less tightly pegged to the dollar. Those that were notionally “floating” were in practice managed by central banks to mimic a peg. Now they really do float—or sink.

Partly because of the experience of the last crisis, countries are better prepared for the next. All have foreign-exchange reserves adequate to cover at least six months of imports. And the particular cause of the 1997 crash—large-scale borrowing in dollars to finance local-currency investments, especially in property—is out of vogue. So contagion is not what it used to be. In 1997-98, a property bubble burst in Bangkok, revealing much that was rotten in Thailand’s economic management and the corrupt links between its banks, businesses and politicians. On examination, similar ailments could be seen to afflict many of its neighbours as well: “Asian” values became Asian flaws.

Made in China

This time, a global shift in perceptions of financial risk is affecting all emerging markets. It is not that Asian countries are especially vulnerable because they are in Asia. Rather, some face difficulties because of policy choices made by their governments: India’s persistent failure to tackle its budget deficit, for example, and its panicky-looking introduction in August of minor capital controls; Indonesia’s increasingly strident approach to foreign investors in its abundant natural resources; Thailand’s popular but expensive purchases of rice at above-market rates.

So for now at least the waters in the river are not an unstoppable surge. But the recent turbulence does raise a longer-term question. As noted, the 1997-98 crisis was partly collateral damage caused by China’s phenomenal growth; and current anxieties follow a modest easing of Chinese growth. The big dangers facing the region now are not just the immediate and perhaps premature fears of the Fed’s “tapering”, but also the risk of a longer, and perhaps sharper, Chinese slowdown.

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