(Read between the lines . . .)
Peace,
Ken
>Date: Sun, 30 Jul 2000 23:10:02 -0500 (CDT)
>From: <[EMAIL PROTECTED]>
>To: [EMAIL PROTECTED]
>Subject: Asia/Thailand - Economy
>
>Stratfor.com's Weekly Global Intelligence Update - 31 July 2000
>_________________________________________
>
>It's not news; it's intelligence.
>
>Arafat's Leadership Tied to Peace Process
>http://www.stratfor.com/MEAF/commentary/0007282258.htm
>
>Greece and Turkey Place Caspian Gas Back on The Table
>http://www.stratfor.com/europe/commentary/0007281826.htm
>_________________________________________
>
>Thailand and the Emerging Asian Crisis
>
>Summary
>
>Signs are emerging in Southeast Asia that strongly suggest a
>relapse of the economic crisis that struck the region in 1997.
>Ironically, events in Thailand - where the crisis began - are
>leading indicators of a larger regional trend. The region is caught
>in vicious cycle: unable to muster the political will to reform
>economies and steadily unraveling economies that undermine
>political will. The question now is whether events will be
>contained in Southeast Asia - or spread north to China and Japan.
>
>Analysis
>
>In 1997, the Asian economic miracle came to a very public end.
>Troublesome undercurrents finally became manifest in a financial
>crisis, when Thailand's currency came under intense pressure,
>collapsing and culminating in a general financial panic. Since
>then, Asian economies have struggled to recover.
>
>Some, like the South Korean economy, have done better than others.
>But in general, most Asian nations have been unable to institute
>the radical, fundamental restructuring that a full, regional
>recovery would have required. Some, like Indonesia, have simply
>lacked the wherewithal for reform. Others, like Japan, have lacked
>the political will to endure the wrenching social costs.
>
>Now, Southeast Asian currencies are once again under pressure amid
>political turmoil and a continuously strong U.S. economy. We are
>now seeing signs that, rather than recovering, Asia's economies are
>once again running into rough waters. Indeed, the same country that
>was the first domino to fall in 1997 seems to be leading the way
>again.
>
>The Thai government has been forced to intervene twice in the past
>three months to stabilize the baht, without coming close to solving
>the currency's problems. Last week, the government was forced to
>intervene again. According to Thailand's The Nation, the Bank of
>Thailand intervened in the London market on July 26 in an attempt
>to strengthen the baht, which had fallen to its lowest level since
>September 1999.
>________________________________________________________________
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>
>Thailand is not alone in the region in having to cope with the
>steady decline of the value of its currency. The Philippine peso,
>which often closely follows the baht on the market, came within
>0.134 pesos of its weakest crisis point of 45.209 to the dollar on
>July 27. The Indonesian rupiah hit its weakest point since October
>1998, and the Singapore dollar has reached its weakest point since
>September 1998.
>
>But the baht has taken the most curious and disturbing path of
>regional currencies. The currency has experienced a general
>downtrend since 1998, with intermittent upswings. There was a brief
>rally between March and May 1998, and another between October and
>December of 1999. Neither could reverse the general downtrend.
>
>This general pattern is seen throughout Southeast Asia; the peso
>has declined more sharply than the baht, and the rupiah has
>declined steadily since the presidential elections in October 1999.
>In the face of this pattern, stronger countries, like Singapore and
>South Korea, have been forced to weaken their currencies in order
>to remain competitive with regional rivals.
>
>Three key factors are behind these events. First, Asia has yet to
>truly recover from the economic crash of 1997 and remains
>fundamentally weak. Second, the continued strength of the U.S.
>economy - along with rising U.S. interest rates - has put heavy
>selling pressure on Asia's currencies. Finally, political and
>social instability in Asia - particularly Southeast Asia - is again
>on the rise, decreasing investor confidence in these nations.
>
>This last is the key to understanding the region's problems. The
>issue is no longer economic, but political; the region's economic
>problems are now symptomatic of the region's political problems.
>The economic problems could be solved in many of the region's
>nations if the necessary reforms could be instituted.
>
>But the fragility of the region's political systems makes
>meaningful reform impossible. A regime that imposes the required
>measures cannot survive. Paradoxically, the failure to impose these
>measures has already created a long-term malaise that erodes
>confidence in the regimes' ability to manage the situation. As a
>result, there is a no-win situation in much of Asia.
>
>Consider Thailand. Thailand's ruling party, elected due to popular
>dissatisfaction with the previous government that presided over
>Thailand's epochal financial crisis, was badly beaten in the
>mayoral election in Bangkok on July 23. The election was won by
>Samak Sundaravej, a deputy prime minister during the 1997 financial
>crisis. He beat the main opposition candidate by nearly two to one
>and the ruling party candidate by a margin of four to one.
>
>Samak's victory was particularly troubling for both the ruling and
>the main opposition party. He is dogged by allegations of
>corruption in the Thai press, supports close cooperation between
>government and business, opposes freedom of the press and ordered a
>brutal crackdown on pro-democracy demonstrators in the 1970s. Samak
>is the epitome of the pre-1997 politician-businessman whose
>manipulation of the banking system was a central cause of the Asian
>financial crisis.
>
>Nevertheless he won. He defeated both the party that promised
>reform and the new opposition party that encouraged economic
>reforms. This provides a sense of the dilemma faced by Thailand.
>The public is simply incapable of accepting the social cost of
>either moderate or radical reform. Faced with the need to change,
>the public is turning back to the politicians who created the
>crisis in the first place. With parliamentary elections mandated
>before November, Thailand appears poised for a return to the
>political status quo ante.
>
>The consequences for international confidence in Thailand's economy
>would be negative, to say the least. Indeed, the currency markets
>are already registering their dismay. Other regional nations are
>facing equally difficult political situations, as dissatisfaction
>mounts over the lack of economic recovery.
>
>Confidence in Indonesia's president, Abdurrahman Wahid, has
>steadily declined since his election in October, and he faces an
>August showdown with a parliament increasingly pressing for his
>removal. In the Philippines, President Joseph Estrada has faced
>continued accusations of corruption and cronyism, and thrown the
>nation's slender resources into a full out military action in the
>south against Islamic insurgents. In Malaysia, too, where
>longstanding Prime Minister Mahathir Mohamad enacted currency
>controls shortly after the economic crisis, competition from the
>Islamic opposition has seriously challenged Mahathir's grip on
>power.
>_______________________________________________________________
>
>For more on Thailand, see:
>http://www.stratfor.com/asia/countries/thailand/default.htm
>__________________________________________________________________
>
>The economic and political instability in Southeast Asia feed upon
>each other, creating a vicious circle that threatens to spiral the
>region once again into the depths of economic crisis. If Thailand
>fails to control the declining baht, the Philippine currency is
>certain to collapse - if it doesn't do so on its own before that.
>Indonesia, too, threatens to trigger a relapse of the currency
>crisis and has called on its neighbors for technical assistance to
>bolster the plummeting rupiah.
>
>Estrada, in his State of the Nation Address on July 24, warned that
>the peso decline was the result of "a new Asian contagion." While
>largely intended to pass the buck for the 15 percent decline in the
>value of the peso since his election two years ago, the Philippines
>appeared cautious of another currency crisis early in the year,
>establishing limited currency controls in January.
>
>Thailand's central bank appears strong enough to delay the
>inevitable for a while, but the nation's economy is large enough
>that when it falls, it will certainly drag the Philippines and
>Indonesia with it. Despite Mahathir's currency controls, Malaysia,
>too, would be unlikely to avoid the regional relapse.
>
>As a result, it appears that Southeast Asia is once again on the
>brink of economic crisis, and its leaders are becoming aware of it.
>Given the political configuration in many of these countries, it
>seems unlikely that internal political intervention will stabilize
>the situation. To the contrary, we would expect the regions'
>political paralysis to exacerbate the problem.
>
>It is equally unlikely that international intervention will provide
>any stability. The International Monetary Fund (IMF) and the major
>powers can stabilize currencies for a while, but currency
>instability is a symptom of the problem, not the problem itself.
>IMF austerity leads to social chaos; lack of austerity leads to
>social malaise.
>
>The real issue is how far north the disease will spread. The two
>major question marks are China and Japan. Japan, the largest
>economy in Asia, also suffers from the Asian disease in its extreme
>form. Japan's political process has prevented meaningful reform
>more effectively than anywhere else in Asia. The very size of the
>Japanese economy has allowed Japanese politicians to buy enormous
>amounts of time, not available to their poorer relations in the
>south, with which to put off the day of reckoning.
>
>If Southeast Asia moves into crisis, Japan will not be far behind.
>Nor will China. China worked very hard to limit the effects of 1997
>on China. Much of the labor was smoke and mirrors. China was hit
>and hit hard. One of the results was an intensification of
>political controls designed to limit social instability resulting
>from economic dysfunction. That bought China some room for
>maneuvering. But time has passed without a fundamental solution to
>China's economic problems. A new tidal wave of Asian economic
>problems could cause massive problems for China this time.
>
>Asia and the United States now appear caught in a zero sum game, in
>which U.S. economic strength costs Asia dearly. This is more
>appearance than reality, though. We have noted the extraordinary
>de-synchronization of the global economic system. The reality is
>that whatever happens to the United States, Asia is feeding upon
>itself.
>
>Its inability to re-capitalize its banking system is reflected in
>its endemic currency crisis. That in turn is rooted in a failure of
>capital formation. So long as Asia maintains inefficient
>enterprises in order to maintain social stability, it cannot
>rebuild its economy. The region's best hope is that the long-term
>malaise will be just that - long term - and will not turn into
>another crisis.
>
>That is what regional leaders are hoping for, and that is a pretty
>dismal hope. It looks like Southeast Asia is headed once again for
>rough waters and that it may well take the Asian economic powers -
>China and Japan - with it.
>_______________________________________________________________
>
>For more on the Asia, see:
>http://www.stratfor.com/asia/default.htm
>__________________________________________________________________
>
>
>(c) 2000 Stratfor, Inc.
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