Ambivalence on progress 20 years after financial crisis

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The two-decade anniversary of the Asian financial crisis was marked quietly by regional investors and officials, as they acknowledged comebacks since that grim period but were wary of new debt and capital-flow risks despite healthy first-half securities-market results.

The International Monetary Fund, which extended US$40 billion in rescue programs during the crisis that began in Thailand in 1997 and quickly spread, noted the pain from broken currency pegs and widespread corporate bankruptcy and average GDP growth at roughly half the previous 7-8% pace, while commending foreign-reserve accumulation and financial sector cleanup and regulatory strengthening.

The episode prompted local-currency bond-market expansion under the auspices of the Asian Development Bank, and bilateral and multilateral swap line arrangements with the Chiang Mai Initiative.

Franklin Templeton emerging-markets chief Mark Mobius commented about sovereign and business “harsh lessons” from untenable debt loads at the same time that the Bruegel think-tank tracking these trends put corporate leverage in the Asean (Association of Southeast Asian Nations) region at 100% in terms of total liabilities to equity, more than  half of it short term. The Chinese ratio is more extreme at 175%, and although Asean’s position is “sound”, the Brussels-based monitor stipulated that trade and funding shocks could reprise crisis-era qualms.

Thailand’s ruling generals also hesitated to cite the 20th anniversary of the crisis  as a possible reminder of the decline of democracy since the crash, as its MSCI Index rose 9% through the first half of this year.

Since passage of a referendum on a new Thai constitution a year ago, election plans remain murky, and the army’s self-proclaimed reputation for integrity has been dented by a major human-trafficking scandal involving neighboring Myanmar’s Rohingya refugees.

The new king has now assumed full control of the estimated $30 billion Crown Property portfolio, which includes stakes in blue-chip stock-exchange listings Siam Cement and Siam Commercial Bank.

Growth in Thailand’s gross domestic product was over 3% in the first quarter on decent consumption, but public investment, up 10%, was the main driver. Exports rose 7% from January to May, and the central bank recently intervened to curb the baht’s 5% appreciation against the US dollar to safeguard gains. The Bank of Thailand’s benchmark 1.50% policy rate otherwise is on hold under a loose monetary stance with negligible inflation.

Thailand’s trade surplus recovered to almost $1 billion in May, but consumer confidence is still low with a 75 reading, under the positive 100 threshold, and the manufacturing Purchasing Managers’ Index is barely expansionary. Poor crop prices are hitting agriculture, at one-tenth of GDP, as foreign direct investment continues under 1% of the total with lingering restrictions.

Indonesian stocks advanced almost 15% through midyear despite a political scandal around the parliamentary Speaker from the Golkar Party founded in president Suharto’s time and a close ally of the incumbent Joko Widodo.

Growth is humming at 5%, below Widodo’s 7% promise, and fiscal space is limited, nearing the 3%-of-GDP deficit cap. With rising food and energy costs, inflation is 4.5% and the central bank has paused its easing cycle. Credit growth is only in single digits as banks turn wary of private=sector debt, which is half the $330 billion external total.

Former Bank Indonesia chief J Soedradjad Djiwandono, interviewed about the Asian financial crash, expressed resumed concern over “scary leverage”. Foreign investors have poured $7.5 billion into rupiah notes earning 9%, but Fitch Ratings was cautious about the doubled bad-loan ratio at 3% since the 2013 “taper tantrum”, persistent 2% current-account gap, and stalled reform momentum from “religious frictions”.

In Malaysia, where the MSCI Index climbed 12% through the first six months, former prime minister Mahathir Mohamed was back in the news not just for crisis retrospective but possible renewed candidacy for the post again under a startup political party against successor Najib Rezak, still stalked by the multibillion-dollar 1MDB (1Malaysia Development Berhad) fund-diversion scandal under investigation on three continents.

A separate commission of inquiry was established in July to review questionable central-bank foreign-exchange transactions in the 1980s and 1990s in a counterattack against Mahathir’s tenure.

In advance of likely elections in Malaysia, GDP growth was 5% in the second quarter, and the 2018 budget offered new tax incentives for high-tech innovation. China pledged $80 billion in medium-term projects under the Belt and Road scheme, but household spending remains squeezed by 80%-of-GDP debt.

Inflation was 3.5% in June, and the Bank Negara Malaysia overnight rate stayed at 3.0%, with the currency down 7% over the past year despite a recent surge, reflecting the dichotomy in Asean’s post-crisis 1998, 2008, and perhaps 2018 investor-haven pitch.

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