Manila Bulletin

Re­peat of 1997 Asian fi­nan­cial cri­sis ruled out

- By SHARON CHEN and SAN­DRINE RASTELLO (Bloomberg) Foreign Exchange Market · Currencies · Finance · Financial Markets · Business · Indonesia · Malaysia · China · United States of America · South Korea · Thailand · Asia · Pacific · International Monetary Fund · Federal Reserve System · Carbon · Singapore · Nomura Holdings · Nomura Securities · DBS Group Holdings

South­east Asian cur­ren­cies are tum­bling, and that may be a good thing.

In­done­sia’s ru­piah and Malaysia’s ring­git have fallen to lev­els hit dur­ing the Asian fi­nan­cial cri­sis of 1997-98, lead­ing a de­cline in the re­gion’s cur­ren­cies. The drop won’t spark the same eco­nomic melt­down this time around, ac­cord­ing to an­a­lysts who watched the dis­as­ter un­fold al­most two decades ago. In fact, it could be a healthy re­align­ment that helps boost ex­ports.

The slide in cur­ren­cies, ex­ac­er­bated by China’s sur­prise de­val­u­a­tion of the yuan by the most in two decades last month and a strength­en­ing US dol­lar, is oc­cur­ring amid lower ex­ter­nal debt bur­dens, more flex­i­ble ex­change rates and higher for­eign-cur­rency re­serves than be­fore. Most South­east Asian economies now run cur­rent-ac­count sur­pluses in­stead of the deficits they had be­fore the late 1990s cri­sis.

“Things are fun­da­men­tally dif­fer­ent now com­pared with 1997,” said Tomo Ki­noshita, chief economist at No­mura Se­cu­ri­ties Co., who stud­ied Asian economies over the past 18 years. “Author­i­ties have in­tro­duced quite rigid pru­den­tial mea­sures to avoid a cur­rency cri­sis. The de­pre­ci­a­tion in the cur­rency is a pos­i­tive fac­tor for the ex­ports and gen­eral com­pet­i­tive­ness of those Asian na­tions.”

Malaysia and South Korea have run cur­rent-ac­count sur­pluses ev­ery year since 1998. And the re­gion has ac­cu­mu­lated for­eign ex­change re­serves. In­done­sia’s stock­pile is five times as large as it was 18 years ago, and Thai­land’s six times. The four coun­tries’ ex­ter­nal debt – ex­clud­ing re­serves – has fallen from 60 per­cent of gross do­mes­tic prod­uct in 1997 to 11 per­cent of GDP, ac­cord­ing to DBS Group Hold­ings Ltd.

“The re­gion still has many buf­fers, so we are not in a re­peat of the Asian cri­sis con­text,” said Anoop Singh, for­mer di­rec­tor of the Asia and Pa­cific Depart­ment at the In­ter­na­tional Mon­e­tary Fund, who led mis­sions to Thai­land, In­done­sia and Malaysia dur­ing the Asian cri­sis. “The US is clearly re­cov­er­ing strongly and this is good news for the re­gion and the global econ­omy.”

That’s start­ing to show: In­done­sia’s ship­ments to the US, the coun­try’s largest des­ti­na­tion, rose 14 per­cent in Au­gust from July. A US re­cov­ery also has South­east Asian pol­icy mak­ers brac­ing for an in­crease in in­ter­est rates by the Fed­eral Re­serve, which meets from Sept. 16 to Sept. 17, a move that may draw cap­i­tal out of the re­gion. How­ever, out­flows from Asia shouldn’t be sig­nif­i­cant, David Car­bon, chief economist at DBS in Sin­ga­pore, wrote in a Sept. 10 note.

“The amount of cap­i­tal that does or doesn’t flow out of Asia in the weeks ahead will de­pend on three things: the strength of the US, the weak­ness of China and how much Asia to­day re­sem­bles the Asia of 1997,” said Car­bon, who be­gan cov­er­ing Asian mar­kets and economies in 1994, when the Fed be­gan a mon­e­tary tight­en­ing cy­cle. “Fear not. The US is not as strong as many be­lieve. China is not as weak. And Asia to­day looks noth­ing like 1997.”

To be sure, some South­east Asian economies are in a bet­ter po­si­tion than oth­ers. The IMF in July warned about the “siz­able” share of cor­po­rate debt in for­eign cur­rency as a share of GDP in Malaysia and Thai­land.

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