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When the baht comes in

The Asian crisis, which began with the floating of the Thai baht in

mid-1997, seems a distant memory with GDP growth forecasts for Asian

countries hovering around the mid-single-digit level. However, the weakness

this year in some Asian markets has raised concerns ofa rerun of 1997/98.

In 1997, cash poured out of Asia. Indonesian and Malaysian equities hit a

trough in sterling terms in late 1998 at around 90 per cent below their

1997 peaks.

Blame for the crisis has been laid at various doors, from the IMF to

George Soros to hedge funds. There was an element of the crisis that was

like a bank run. A well-run bank can collapse because all its depositors

want their money back at the same time.

Some activity by hedge funds and others was with a view to destabilise but

the root cause of the Asian crisis was mismanagement at both corporate and

national level.

Malaysia introduced currency controls and the Hong Kong Monetary Authority

invested $15bn buying into the stockmarket.

Both responses cured the symptoms of economic mismanagement but did little

to cure the disease. The response of the Hong Kong authorities as the hedge

funds exposed the fault lines in the economy was to sort out the hedge

funds rather than to sort out the economy.

The detaching of Asian currencies from the dollar followed by their

collapse, the consequent growth in exports to a booming US economy and

inflow of foreign currency allowed interest rates in Asia to ratchet down

and economic growth rates and stockmarkets to ratchet up.

But too many countries and companies had structural problems that let them

roll along in good times but unable to cope when conditions became less

than optimal. That is still the case today.

In Thailand, two years after the crisis, more than 40 per cent by value of

loans in the banking system remain non-performing.

The Bank for International Settle-ments has ranked South Korea&#39s

bankingsystem 43rd out of 46 banking systems and the debt picture at the

big Korean conglomerates has fallen from the truly horrendous debt/

debt+equity of 80-plus per cent to the merely shocking 60 per cent.

In Indonesia, following the de facto nationalisation of the banking system

during the crisis, 80 per cent of the country&#39s industrial assets remain

under state control.

It would be unfair to say that Asia has not responded to the crisis. In

South Korea, the government has put pressure on the big conglomerates, the

chaebol, to reform their business practices and to end the system of

cross-guarantees, with strong subsidiaries propping up weak ones.

In Hong Kong, the government has turned entrepreneur and is trying to

broaden theservice base of the economy, even agreeing to the building of a


In Singapore, the government has opened up the banking sector to an

extent, enc-ouraged the influx of foreign executivetalent and pushed

companies to improve returns on equity, even setting them a target of 12

per cent.

Indonesia has seen the greatest changeof all, with the replacement of

presi-dent Soeharto by the infinitely more able Abdurrahman Wahid.

After the long bull run in equity markets, there is a lot of capital

sloshing around the globe. It is not difficult to access this capital and

there are many companies in Asia that need it and have assets to trade for

it. Butthe proprietors of these assets are unwilling to cede control.

I would like to see a further re-liquefication of Asia. In the UK, we are

quite used to seeing control of our assets disappear overseas and I would

like to see Asian corporates and governments more willing to see control of

industrial assets going overseas.

This is not neo-colonialism – if one is a proprietor of a company, or

country for that matter, that is not going to make it through the next

downturn, then it is common sense.

A properly managed and properly capitalised Asia is what the continent

needs right now. It is some, but not all, the way there.


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