When money was easy in Bangkok, Siriwat Voravejvutkuth was one of those in the fast lane. The one with the Mercedes, the cell phone and the Rolex, to say nothing of a line of credit. Already a successful stockbroker but dreaming of doing better still in Thailand’s roaring “tiger economy,” Siriwat borrowed heavily to invest in 28 luxury condominiums overlooking a golf course.
Builders put the finishing touches on Siriwat’s condos earlier this year. But by then, only bears were roaring in Thailand’s crashing markets. And there were no buyers at all. “I could not sell a single one,” Siriwat laments. “I am not just broke, I am overwhelmed with debt.”
For many of Thailand’s 61 million people, Siriwat’s story is all too familiar. If it has not happened to them, they have been hearing similar tales from friends and family for months. The local baht currency is worth half what it was a year ago. Inflation has soared. Stocks on the Bangkok exchange are selling at 40 cents to the dollar of their value in January. And then there are the Mercedes. In the full flush of the boom years of the past decade, Thais snapped them up so fast the country became the world’s seventh-làrgest market for the luxury cars. Now, so many can’t afford to keep them that Bangkok dealer Wasun Panon organizes a weekly consignment sale in a downtown parking garage. He calls it a “market for
the formerly rich.” There are plenty of gawkers. But not many have spare money to spend on a Mercedes—even a used one.
Thailand’s cratering economy will be on many minds in Canada as well next week. Beginning on Nov. 21, trade officials from Bangkok and 13 other capitals ranged along the western side of the Pacific, as well as from Canada, the United States, Mexico and Chile, gather at Vancouver’s Canada Place to prepare for the fifth summit of the Asia-Pacific Economic Cooperation forum. On Nov. 25, Prime Minister Jean Chrétien will play host to U.S. President Bill Clinton, China’s President Jiang Zemin, Japanese Prime Minister Ryutaro Hashimoto and the other heads of government or deputies from the 18 APEC “economies” (as they are officially called to get around the presence of non-country Hong Kong and non-recognized Taiwan). The high-powered group will hold a daylong retreat at the University of British Columbia from which even their most senior officials will be excluded. The official purpose of the get-together is to assess progress towards APEC’s goal of “free and open trade and investment” within the region by 2020. But with October’s sell-off in global stock markets fresh in their thoughts, and several Asian currencies and markets still in freefall, the question likely to dominate debate is: where will the Thai virus strike next? And what, if anything, can be done about it?
The same questions will overshadow other meetings in what
promises to be the biggest diplomatic gabfest in Canadian history. Along with leaders representing roughly one-half of the globe’s economic activity, a horde of some 8,000 lower-ranking officials, lobbyists, salesmen, academics, activists and journalists will also descend on Vancouver next week. They will take part in an exhausting array of trade negotiations, international seminars, networking breakfasts and geopolitical street theatre (page 68). Frustrated locals, meanwhile, will find many downtown streets closed off by security cordons protecting the largest number of leaders—and potential assassins’ targets—ever brought together in a Canadian city.
But economics are more likely to darken the summit than terrorism. In the 11 months since Chrétien led his last Team Canada sales foray into the western Pacific, what once was dubbed the Asian miracle has begun to look more like a glittering mirage. In January, business representatives travelling with Chrétien boasted that they had signed export deals worth $1.2 billion during stops in Thailand, South Korea and the Philippines. Now the future of many of those pacts is in doubt, as all three countries wrestle with the financial crisis gripping the region.
Nowhere has the meltdown been worse than in Thailand. With debt skyrocketing and the country’s accounts drenched in red ink, Thai officials abandoned attempts to protect the value of the baht against the U.S. dollar in July. Since then, the nation has plunged steadily deeper into political as well as economic crisis. In August, the International Monetary Fund arranged a $21-billion bailout for the floundering Thai economy—in return for the promise of a balanced budget and other austerity measures. But partisan manoeuvring within the ruling six-party coalition stalled the reforms, while criticism of the government mounted. Finally last week, beleaguered Prime Minister Chavalit Yongchaiyudh handed in his resignation to the King of what was once Siam. Local markets surged on the news that Chavalit’s likely successor would be opposition leader Chuan Leekpai, a former prime minister with a strong economic team.
The Thai financial contagion has spread across East Asia. Since August, Malaysia, Indonesia, Singapore, South Korea, Taiwan and the Philippines have all watched their stock markets tumble and their currencies plummet
against the U.S. dollar. Even resilient Hong Kong’s bellwether exchange has taken a drubbing while its monetary authorities have struggled to defend the Hong Kong dollar’s peg to the U.S. greenback. In late October, the infection finally spilled over onto world markets, sparking a sell-off in securities on Wall Street and Bay Street. At the end of last week, a new slump in Hong Kong and other Asian markets contributed to a 101-point fall—1.3 per cent—in the Dow Jones index. That trend alone might be reason enough for APEC to tackle the issue. But several leaders—among them Malaysia’s outspoken Mahathir Mohamad and the Philippines’ Fidel Ramos—have also promised to raise the subject in Vancouver.
Yet what the leaders can do to ease the crisis is a tough call. Ramos, for one, may push the idea of a regional Asian rescue fund. It would help prop up national currencies in order to head off a bailout by the IMF, with its unpalatable habit of demanding that governments balance their budgets and allow money-losing enterprises to close. The idea has some support, notably from Mahathir and from a group of senior business figures commissioned by the leaders to comment on APEC’s progress. ‘We believe such a fund should be implemented,” said the business group’s Canadian chairman, Paul Gobeil, after meeting Chrétien in Ottawa. “He agreed this should be part of the Vancouver discussion.” But other experts give the idea little prospect—or reason—for success. “There has been a lot of talk about an Asian stabilization fund,” said Chia Lin Chan, chief economist for Singapore’s ABN AMRO Bank. “But I don’t know what the fund would do and who would run it. If it ran separately from the IMF, the fund would have no credibility and if it ran under the IMF there would be duplication.” What is even more likely to kill off the idea is
a shortage of eager contributors. APEC’s richest member, the United States, is an unlikely candi-
date to underwrite a competitor for the Washington-based IMF. And even Tokyo has good reason to keep its distance. “Bluntly put,” said one Japanese banker in Bangkok, “could you see the Japanese government trusting their money to the people who ran these economies down in the first place?”
In any case, many experts see the discipline of the marketplace as the most effective cure for the current pain. As collapsing wealth reins in ill-considered investment, says currency specialist Ron Wirick of the Western School of Business, “the crisis itself creates the seeds of the solution.” By that test, Thailand may already be experiencing the first wrenching steps towards recovery—in the form of the bankruptcy of half its financial institutions and the loss of thou-
sands of jobs. “That changes peoples’ spending habits
quite dramatically,” Wirick observes. It is questionable, too, whether more money, by itself, would bring much relief to the Asian
tigers. Their ailments fer, for one thing. Singapore, while suffering in the currency sell-off, continues to enjoy strong growth and is running a healthy surplus in its current account—the all-important measure of money flowing into the country through trade, tourism
and the like, versus money flowing out. Hong Kong’s current account is slightly in the red, and most analysts have for months considered both its share and real-
The touchy corruption issue will likely arise
estate markets ripe for revaluation downward. But its role as the financial service centre for China’s modernization—as well as sound economic management—underwrites confidence in Hong Kong’s long-term prospects. The Philippines, while suffering from high interest rates and a falling peso, has nonetheless taken steps in recent months to put its monetary house in order.
There is less good to say about some other troubled Asian economies. Malaysia’s Mahathir shocked the IMF’s annual meeting in Hong Kong in September with accusations that international currency speculators intent on holding Asia back were to blame for months of attack on his country’s ringgit. His outburst ignored Malaysia’s yawning current-account deficit. And it did nothing to help an economy where growth was already on the skids and debt is at an all-time high. The ringgit promptly fell some more.
The scale of Indonesia’s difficulties became clear when Jakarta made a deal with the IMF in late October. It has lined up $53 billion in foreign standby loans to support the rupiah. Oil and strong clothing exports are on Indonesia’s side. Working against it are networks of favoritism and preference that have long enriched the powerful friends and family of President Suharto, often through vast monopolies. And even as APEC banners began to appear on light standards in Vancouver last week, reports from South Korea suggested it might be the next APEC economy to have to call on the IMF for help. An expensive defence of the won has exhausted its banks without preventing a 15-per-cent drop in the currency. With $111 billion in foreign loans due over the next year, some observers speculate that the crisis could tip the
world’s llth-largest economy into recession. Standing in the way of recovery for APEC’s
most troubled economies, in fact, is not a shortage of credit, but a subject that will prove far touchier for the forum leaders to confront. That is the web of cronyism, cross-ownership and enmeshed interests that in much of the region puts politicians and local business tycoons in each other’s pockets. Indonesia’s corruption has become legendary, but it is hardly alone. “Many Thai leaders,” noted Singapore’s influential Senior Minister Lee Kwan Yew, “have personal interests in the fate of finance companies and banks, hence a natural reluctance to discipline them.”
Touchy as it is, the corruption issue is likely to be raised when APEC leaders gather on UBC’s Pacific-lapped grounds, even if it is embedded in code-words like “transparency” and “gover-
nance.” Suharto, for one, may face pressure from Clinton and others to relax the grip of some
of Indonesia’s monopolies. Several other leaders may hear strong warnings about the urgency of letting insolvent banks go broke—even if they belong to your friends. “Other countries will have to do what Hong Kong did 20 years ago—that is, clean themselves up,” said Garrett Lambert, who was Canada’s envoy in Hong Kong until July and is now a lecturer at
the University of Victoria. Hong Kong cleaned up its corruption not because it was a moral issue but because people concluded it was bad for business.”
The APEC summit may be one of the few settings where it is possible to raise such topics. Often derided for lacking any enforcement of its good intentions, the forum has been better at creating bold titles for its annual communiqués (the Osaka Declaration, the Manila Action Plan) than at hitting clear targets. Gobeil’s business advisory group, in a report to be delivered to leaders in Vancouver, gives APEC what amounts to a failing grade on efforts to achieve freer trade. But since Clinton instituted annual summits in 1993 in Seattle, APEC has offered something rare: a chance for the most important decision-makers in the fastest-growing economic theatre in the world to assess each other’s thinking, face-to-face and without a scripted agenda. Defenders of the forum credit jawboning at last year’s summit in the Philippines for helping to cement commitment to a global agreement on information technology brokered by the World Trade Organization. Says Earl Drake, a former Canadian ambassador to China, now a business consultant and academic in Vancouver: ‘We have a lot of of transatlantic institutions but we don’t have many transpacific ones. They need to be encouraged.”
In Bangkok, meanwhile, burned speculator Siriwat has already begun his own adjustment program. Faced with a frozen credit line and out of cash, Siriwat set his handful of employees to making sandwiches, which he sells below an escalator in Bangkok General Hospital. “Right now,” he says, “it is easier to sell sandwiches than luxury condominiums.” It is the kind of realism that will prove useful for APEC’s leaders as well.
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