Three years ago this month, a financial storm of enormous
proportions broke over Southeast Asia. A region that had experienced
unheard of economic growth for two decades found itself reeling from
depreciated currencies, corporate defaults, rising unemployment, and
Asia's crisis hasn't been just financial and economic, but
political as well. The onset of the financial crisis coincided with
the promulgation of the most democratic constitution in Thailand's
history.President Suharto's autocratic leadership fell in Indonesia,
and fair elections were held as that country took a major step
toward genuine electoral democracy.
On the surface, Southeast Asia appears to have recovered
remarkably from the economic crisis. Currencies have recouped some
of their lost value, current account balances have stabilized,
inflation has been kept low, and exports are rising. All of this has
contributed to positive economic growth throughout the region.
But Southeast Asia's recovery looks increasingly fragile as
domestic difficulties and signs that the US economy is slowing make
foreign investors cautious.Indonesia and Thailand face significant
problems - investment remains far below pre-crisis levels and their
banking systems have substantial nonperforming loans.
While such loans have fallen in Thailand from 67 to 38 percent of
all loans, those remaining nonperforming loans amount to 54 percent
of GDP.Indonesia's banking system is in shambles, with 82 percent of
all loans listed as nonperforming.
Much of Southeast Asia's growth has been contingent on the
robustness of the US economy.The US is the largest buyer of
Southeast Asian goods, accounting for more than 20 percent of
exports from Thailand and Malaysia and 30 percent from the
Philippines.While Americans have been buying Thai silk and
Indonesian sneakers, they've also been purchasing value-added
commodities, such as computers and electronic products.If the US
economy stumbles, particularly in the technology sector, economic
growth throughout the region will be severely weakened.
Another difficulty Southeast Asian economies are facing is the
recent rise in US interest rates.Higher interest charges on foreign
debt will hamper economic recovery in the region as Southeast Asian
governments have assumed a mountain of debt to shore up their banks
and corporations.Rising interest rates have also moved short-term
capital to America for higher returns and have begun to exert
pressure on regional currencies. …