Led by S. Korea, Asian Economic Crisis Eases Businesses Embracing Needed Reform

Article excerpt

PUSAN, South Korea -- There were already 1,000 people crowded into the hotel ballroom, but still the housewives and retirees arrived, scurrying back to the lobby to filch chairs when every seat in the house was taken.

The electric event was a speech about South Korea's shattered economy and why people in this hard-hit industrial city should buy shares in a new mutual fund of South Korean stocks.

"This is the first and last time in the 5,000-year history of Korea that you all have a chance to become rich," Lee Ik Chi, the chairman of Hyundai Securities, promised the audience while hyping his firm's "Buy Korea" fund.

For a country in financial ruin, it would be a tough sell. But that was last year, as the eager investors all knew.

This year, South Korea is on the rise again, leading a remarkable Asia-wide comeback from the financial crisis that nearly bankrupted the nation at the end of 1997 and plunged the region into despair.

By the standard measurements of any economist -- exchange and interest rates, debt levels, industrial production -- Asia's financial crisis can be declared over, at least for now.

Stability has been restored and the recession has bottomed out. While it is still a long road back to prosperity, four of the five nations at the center of the storm -- South Korea, Thailand, Malaysia and the Philippines -- are expected to see economic growth this year. The outlook is less certain for Indonesia, where the economic turmoil spiraled into political chaos.

Measured by investor confidence, the recovery is even further along. Stock prices across Asia -- from Seoul to Hong Kong to Bangkok to Jakarta -- have soared 25 percent to 45 percent this year, riding a volatile wave of excitement and optimism that contrasts dramatically with the fear and doom that settled on Asia after Thailand's currency crashed in the summer of 1997.

"We've turned the corner; you've seen the worst," said Sun Bae Kim, a regional economist at Goldman Sachs in Hong Kong. "From an economist's point of view, the world looks a lot less worrisome than it did even a month ago."

SLOWLY REBUILDING

The pronouncements have come in past weeks from the International Monetary Fund, the Asian Development Bank, rating agencies and other international financial organizations.

They have all noticed the pick up in economic activity, the lighter mood, the government reforms, the promises of corporate restructuring. And they are no longer expressing the fear that Asia has dropped off a cliff it might never be able to reclimb.

The concerns now are more forward-looking: Will financial systems be rebuilt properly to avoid another catastrophic meltdown? Did reckless corporate chieftains learn their lessons? Can the millions who lost their jobs and futures be better protected?

"The worst of this crisis is over, but there is still a very heavy agenda of reforms," said Michel Camdessus, managing director of the International Monetary Fund, in a speech in Hong Kong.

The new fear is that declaring an end to the crisis has ignited a wave of "irrational euphoria" in stock markets, as Camdessus put it, that will reinflate corporate balance sheets too quickly and either take the pressure off the need to restructure or set up another mini-crisis if the bubble pops and markets crash again.

"Because of an early recovery, complacency is the biggest risk," said Sri-Ram Aiyer, who runs the World Bank's Korea department.

In one of several important judgments on the recovery, Moody's Investor Services upgraded the credit-rating outlook for the four largest commercial banks in Thailand, reflecting progress in repairing the depleted capital base and diminishing the risk of another crisis. …