FOCUS-ON-TRADE NUMBER 17 Aug. 1997

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Recommended Citation

Walden Bello*, "FOCUS-ON-TRADE NUMBER 17 Aug. 1997", Aprenet, August 17, 1997, https://nautilus.org/aprenet/focus-on-trade-number-17-aug-1997/

FOCUS on APEC

____________________________________________________________________

FOCUS-ON-TRADE NUMBER 17

SPECIAL ISSUE – CURRENCY TURMOIL IN SOUTHEAST ASIA

 

A regular bulletin produced by Focus on the Global South (FOCUS)

Bangkok, Thailand

Number 17, August 1997

Focus-on-Trade continues, under a new name, the electronic bulletin

formerly known as Focus-on-APEC. The new name reflects the expansion

of the concerns of Focus on the Global South to trade forum and

organisations beyond APEC, including the World Trade Organisation

(WTO) and the ASEAN Free Trade Area (AFTA).

Focus-on-Trade contains updates on trends in world trade, but its

emphasis will be analysis of these trends from an integrative,

interdisciplinary viewpoint that is sensitive not only to economic

issues, but also to ecological, political, gender and social issues

related to developments in world trade.

Your contributions and comments are welcome. Please contact us c/o

CUSRI, Wisit Prachuabmoh Building, Chulalongkorn University, Bangkok

10330 Thailand. Tel: (66 2) 218 7363/7364/7365, Fax: (66 2) 255 9976,

E-Mail: admin@focusweb.org, Website: http://focusweb.org

Focus on the Global South is an autonomous programme of policy

research and action of the Chulalongkorn University Social research

Institute (CUSRI) based in Bangkok.

______________________________________________________________________

SPECIAL ISSUE ONTHE CURRENCY TURMOIL IN SOUTHEAST ASIA

Part 1

Siamese Twins: the Currency Crisis in Thailand and the

Philippines, by Walden Bello

Don’t Blame Soros for Currency Woes, The Nation, Bangkok

Part 2

The end of the ‘South East Asian Miracle’? by Walden Bello

———————————————————————

Siamese Twins: The Currency Crisis in Thailand and the Philippines

by Walden Bello*

The peso has stabilized. The economy is back on course. The trade

deficit is under control, and the projected GDP growth rate of 7 per

cent will be achieved. People in the Philippines are today being

bombarded with these reassuring statements from President Fidel Ramos

and his economic team in the wake of the July 11 de facto devaluation

of the peso, which followed on the heels of the depreciation of the

Thai baht over a week earlier.

Most important of all, Mr. Ramos and his advisers tell Filipinos, the

Philippines is definitely not Thailand–that the so- called

“fundamentals” of the two countries are different.

The likelihood, however, is that the peso will continue to be

subjected to speculative attacks that will continue to drag its value

down, with all the consequences of this development in the form of

higher inflation, a lower growth rate, and deterioration of the

country’s external accounts. Indeed, in a few months’ time, it will

be de rigeur for a candidate in the country’s coming presidential

elections in 1998–be it Ramos’ anointed one or a challenger–to run

against the Ramos economic record rather than on a “continuist”

platform.

Why? Because both the short-term indicators, on which foreign

investors and speculators base their moves, as well as the

“fundamentals” which determine whether the economy will remain on a

steady growth path, point the wrong way.

Sensitive Indicators Point the Wrong Way

The two most sensitive indicators that investors and speculators look

at are the trade deficit and the current account deficit, which, among

other things, indicate if a country has the capacity to pay for its

imports and service its foreign debt. The trade deficit in 1996

stood at $12.8 billion, or a doubling in just three years! And owing

to the higher prices of key imports, such as electronic components, it

is unlikely that the net effect of the recent depreciation will be a

reduction from the pre-peso-float projection of $14.6 billion in 1997.

But not to worry, say Philippine government analysts. The current

account balance, which brings to bear on the positive side of the

ledger the remittances from the Philippines’ vast army of overseas

workers, is manageable; and the current account is, more than the

trade deficit, what foreign investors, analysts, and speculators look

at in assessing the strength of the peso. But even if one were to

grant this argument, things look shaky. In 1996, according to

estimates based on official figures, the current account deficit of

$3.5 billion stood at 4 per cent of GNP. Worrisome but not alarming,

say some.

However, when one tightens up the methodology for calculating the

figure to account for unexplained errors and omissions in the balance

of payments, as one prescient HG Asia study did last year, one comes

up with realisation that the real current account deficit is around 7

per cent of GNP– or uncomfortably close to the eight per cent deficit

experienced by Mexico and Thailand before their economic meltdowns

began. With a deficit of that size, the pressure increases on

economic managers to close the deficit by devaluing the currency

relative to the dollar, thus making the country’s exports more

competitive in dollar terms.

It was the uneasiness in foreign investor circles over the strong

possibility of a devaluation that fostered the climate of uncertainty

that invited the attacks on the peso from speculators, fund managers,

and investors. The crisis of the baht in neighbouring Thailand was

simply the match that lit a volatile situation.

Siamese Twins

The perceived weakness of the Philippine currency, however, springs

from more than just the current account deficit. The weak peso is a

sign of the growing lack of confidence among foreign investors in the

country’s economic “fundamentals,” to use a word much in vogue in

financial circles. It is a symptom of a larger problem, and that is

the current foreign capital-driven model of growth followed by the

Ramos administration.

This is, of course, the Thai model of development, and while

officials in Manila deny the comparison at every opportunity, in

fact, the Philippines has followed closely on the footsteps of its

Southeast Asian neighbour. Indeed, to use a particularly appropriate

metaphor, the two are Siamese twins.

The Thai path was to drive high-speed growth through the massive

infusion of foreign capital. The Thais’ special target was the

massive pool of institutional funds circling the globe in search of

profitable investment outlets, which has increased in exponentially in

the last decade. Their formula was simple: 1) liberalise rules

governing the entry of foreign capital, including allowing the

lending of dollars onshore; 2) set local interest rates high in order

to attract foreign money; and 3) ensure foreign investors against

currency risks by pegging the baht to the dollar at a stable rate of

exchange of around 25 baht to the dollar.

The formula was disturbingly similar to that followed by Mexico prior

to the December 1994 crash. And, as in Mexico, the scheme was

immensely successful in attracting foreign capital. Thailand became

the favourite Asian destination of foreign investment, with its

offshore lending institution, the Bangkok International Banking

Facility attracting over $50 billion in scarcely three years since it

was launched in the early 1990’s.

Following the Thais, the Philippine government eliminated foreign

exchange restrictions and liberalised foreign capital entry by among

other measures, opening up the banking system to the participation of

12 foreign banks.

Like the Thais, the Ramos administration pegged the peso to the

dollar at a stable rate of exchange of around P26.50 to the dollar to

eliminate currency risk for foreign investors in the stock market and

local recipients of dollar loans, so that for the whole of 1996, for

instance, there was only a two percent fluctuation in the peso-dollar

rate.

Like the Bank of Thailand, the policy of the Philippine Central Bank

(BSP) was to keep local interest rates high–some 12 to 15 per

cent–in order to suck in foreign capital. This could then be relent

in dollars to local businesses at much less than the local interest

rate that governed peso loans.

And like Thailand, the Philippines enjoyed a rapid infusion of foreign

investment, with some $9.4 billion coming in 1996 alone. Some 75 to

80 per cent of that investment, according to some estimates, was not

foreign direct investment– which is considered more secure because of

a longer-term commitment–but portfolio investment seeking quick and

high returns in the stock market or the bond market.

The Glut

Not surprisingly, a great part of this hot capital went into

speculation in the stock market or into real estate and financial

services, like auto loans and credit cards, instead of productive

areas like agriculture and manufacturing. Real estate loans in

Thailand were estimated by the Bank of Thailand at 10 per cent of the

total exposure of banks and 20 per cent that of finance companies, but

most experts discounted these figures as gross underestimates.

According to some calculations, property-related loans accounted for

50 per cent of all investment, and property development in all its

aspects contributed some 30 to 50 per cent of annual growth of the

gross domestic product.

In the early 1990’s, the building cranes dotting the Bangkok

landscape were a sign of the boom. By 1996, they were a sign of

doom, as developers were stuck with unsold housing units totalling

about $20 billion in Bangkok. By 1997, half of the loans made to

developers were non-performing, some of the country’s top financial

companies were bankrupt, and the credit rating of some of the

country’s biggest banks were downgraded by Standard and Poor.

These developments triggered a deflation of foreign investor

confidence; and the move of fund managers to convert their baht into

dollars and get the hell out of Thailand formed the context for the

speculative attacks on the baht in the last few months.

The same search for quick and easy profits drove foreign capital to

real estate, financial services, and financial institutions in the

Philippines, with the exposure of commercial banks in these sectors

coming to 21 per cent of total loans by 1996. The BSP claims that

real estate loans account for only 9.2 per cent of outstanding loans,

a figure doubted by many experts, who place the figure at more around

15 to 25 per cent. Indeed, the Central Bank’s recent move to restrict

real estate loans to the dangerously high figure 20 per cent of

banks’ loan portfolios–instead of a safer 10 per cent limit –is an

admission that many banks are nearing or have breached the 20 per

cent mark.

In any case, the building boom that began in 1994 paralleled the one

in Bangkok that took place several years earlier, with the same

results: overextended, highly indebted developers such as Megaworld,

which nearly went under last April, and an oversupply of property

units. The issue is no longer whether there will be a glut. It is

how big it will be. All Asia, one local investment house, predicts

that, owing to overbuilding, by the year 2000, supply of high rise

residential units will exceed demand by 211 per cent, while supply of

commercial developments will outpace demand by 142 per cent.

Some local developers say that they are aware of the coming glut, so

they are diversifying away from residential and commercial

construction by building golf courses and tourist resorts!

Productive Sectors Stagnate

As the property sector has moved to a bust, the truly productive

sectors of the economy have stagnated in both countries. Drawn by the

lure of easy money, many Thai manufacturers have gambled on real

estate instead of investing in skills-upgrading and new machinery,

leading to a decline in the competitiveness of the country’s exports.

Export growth was zero in 1996.

In the case of the Philippines, manufacturing is on a downspin, as is

agriculture, as the radical liberalization of trade and investment

regulations that have paralleled financial liberalization are making

production less and less profitable for domestic producers. Duty free

shops are flooding the country with cheap imported manufactures, and

cheap, subsidised rice and corn imports are coming in volumes that far

outstrip the minimum access volumes that the government committed

itself to under the GATT-WTO.

Thailand is now experiencing economic meltdown, with the country is

moving into its first recession in more than 10 years. Some true

believers in the Philippine economic miracle still believe that the

Philippine-Bangkok comparison is false because the Philippines is in

an early growth phase while Thailand, having had a decade of rapid

growth, is naturally tapering off. But the foreign fund managers that

drive your economy couldn’t care less if you are in an early or late

phase of the growth process. If they lose confidence, as they have in

Thailand and are in the process of doing so in the Philippine version

of the Thailand model of development, they will bolt.

Philippine economic managers should have learned from the bursting of

the bubble economy in Mexico in 1994 that relying on massive capital

inflows to drive growth is a surefire way to disaster. But even as

their model unravels next door, Philippine technocrats are drawing

the wrong lessons, trying to highlight marginal differences between

Thailand and the Philippines in an effort to assure foreign capital

that the latter’s “fundamentals” are okay.

It won’t work.

 

*Walden Bello is co-director of Focus on the Global South, a program

of policy research of Chulalongkorn University in Bangkok, and a

professor of sociology and public administration at the University of

the Philippines. He is the author of several books on Asian

development. He is currently a book on Thailand’s economic

development, A Siamese Paradox: Development and Degradation in Modern

Thailand.

 

———————————————————————-

Blaming Soros is no solution to currency woes

Editorial, The Nation, Bangkok, 26 July 1997

Billionaire speculator and quaint pro-capitalist democracy supporter

George Soros does see eye to eye with Malaysian Prime Minister

Mahathir Mohamad on one particular issue. For years, Mahathir has been

a staunch supporter of the besieged Muslims in Bosnia; a country which

Soros has aided with his own money from philanthropic foundations. And

for that, Mahathir had lauded Soros’ magnanimous efforts.

Not anymore. On returning from his two-month sojourn in Europe,

Mahathir spoke darkly of a certain ”American financier” who was

undermining the economies of Southeast Asian countries by

destabilising their currencies. He did not name Soros. But it was

clear that he was referring to him.

Blaming Soros whenever a currency is being raided is not new. What is

new, however, is Mahathir’s assertion that the current bear run on

Southeast Asian currencies is part of a conspiracy by Soros to punish

Asean for embracing Burma.

There is no doubt that Soros was one of the key speculators against

the baht, an attack which has since spilled over to other currencies

in the region. But while Soros may have led the foray, the real push

came from other speculators; institutional investors such as mutual

and insurance funds, and non-financial corporations. Some of these

speculators are Southeast Asians.

That’s not surprising. For once there is a profit to be made, despite

fervent calls for patriotism, few speculators would think twice in

partaking in the run on their own country’s currency. In this country,

we have seen Thais reaping enormous profits from the recent attacks on

the baht, and the same is likely to be true for other Southeast Asian

countries.

But if Mahathir thought that Soros would spare poor economies from his

forays, he was dead wrong. Currency speculation is never a charitable

activity; not even for a philanthropist. It does not profess any

political agenda, nor does it differentiate the poor from the rich.

Mahathir’s outburst, however, is a case of sour grapes. It is known

that Bank Negara, Malaysia’s central bank, often dabbled in currency

speculation. A few years ago, it had its hand badly burnt when it was

caught short while speculating on the US dollar, resulting in losses

running into billions. Surely, Mahathir cannot cry foul when the

speculative game is not going his way.

To blame Soros for the crises sweeping through the currency markets of

Southeast Asia is not addressing the real issue.

When Southeast Asia jumped on the global bandwagon, it should have

prepared for the downs as well as the ups. Instead, many have allowed

the region’s spectacular economic growth to lull them into a false

sense of invincibility and security.

By pegging its currencies, Southeast Asian economies have ensured a

certain degree of stability to help lure foreign funds. But such easy

money is too often splurged on non-productive property markets and

wasteful mega-projects. To add to the woes, billions are squandered

through unmitigated corruption. Such excesses are now being ruthlessly

punished by the currency market.

Mahathir is known for his feisty and virulent attacks on the West on

everything from incest to human rights. There is a ring of truth to

some of his remarks. But often his criticisms are no more than

fig-leaves to deflect detractors. One such diversionary remark was his

accusation that the West was jealous of Malaysia’s economic success,

especially when Malaysian companies were chided for their cavalier

attitude in other Third World countries. His blaming of Soros for

Southeast Asia’s economic woes is vintage Mahathir. While his

far-fetched conspiracy theories may receive a measure of domestic

support given his firm grip on the Malaysian media, for the rest of

the world he is beginning to sound like an angry old man.

1997 Nation Multimedia Group. All rights reserved

 

Focus on Trade #17, end part 1 of 2

 

FOCUS-ON-TRADE NUMBER 17

PART 2 OF 2

SPECIAL ISSUE – CURRENCY TURMOIL IN SOUTHEAST ASIA

A regular bulletin produced by Focus on the Global South (FOCUS)

Bangkok, Thailand

Number 17, August 1997

Focus-on-Trade continues, under a new name, the electronic bulletin

formerly known as Focus-on-APEC. The new name reflects the expansion

of the concerns of Focus on the Global South to trade forum and

organisations beyond APEC, including the World Trade Organisation

(WTO) and the ASEAN Free Trade Area (AFTA).

Focus-on-Trade contains updates on trends in world trade, but its

emphasis will be analysis of these trends from an integrative,

interdisciplinary viewpoint that is sensitive not only to economic

issues, but also to ecological, political, gender and social issues

related to developments in world trade.

Your contributions and comments are welcome. Please contact us c/o

CUSRI, Wisit Prachuabmoh Building, Chulalongkorn University, Bangkok

10330 Thailand. Tel: (66 2) 218 7363/7364/7365, Fax: (66 2) 255 9976,

E-Mail: admin@focusweb.org, Website: http://focusweb.org

Focus on the Global South is an autonomous programme of policy

research and action of the Chulalongkorn University Social research

Institute (CUSRI) based in Bangkok.

______________________________________________________________________

SPECIAL ISSUE ONTHE CURRENCY TURMOIL IN SOUTHEAST ASIA

Part 1

Siamese Twins: the Currency Crisis in Thailand and the

Philippines by Walden Bello

Don’t blame Soros for currency woes, The Nation, Bangkok

Part 2

The end of the ‘South East Asian Miracle’? by Walden Bello

———————————————————————

The End of the “Southeast Asian Miracle”?

by Walden Bello*

Does the currency crisis in Thailand, Malaysia, Indonesia, and the

Philippines spell the end of the Southeast Asian model of development?

In contrast to the path followed by the “newly industrialising

countries” (NICs) in Northeast Asia, development in Southeast Asia was

financed to a great extent by huge inflows of foreign investment

instead of domestic savings.

Deus Ex Machina

The countries of the region were headed toward the same dire fate as

that which engulfed other highly indebted countries of the South in

the mid-eighties when they were retrieved from recession and spun into

prosperity by what amounted to a deus ex machina: the massive inflow

of Japanese direct investment. The trigger was the Plaza Accord of

1985, wherein the yen was forced to drastically appreciate relative to

the dollar owing to pressure from the US, which sought to reduce its

gaping trade deficit with Japan by “cheapening” its exports to that

country and making its imports from Japan more expensive in dollar

terms to US consumers.

With production costs in Japan rendered prohibitive by the yen

revaluation, Japanese firms moved the more labor- intensive phases of

their production processes to cheap-labor sites, mainly in Southeast

Asia. What occurred was one of the largest and swiftest movements of

capital to the developing world in recent history. One conservative

estimate is that between 1985 and 1990, one conservative estimate is

that some $15 billion worth of Japanese direct investment flowed into

Southeast Asia. In the case of Thailand, for instance, the Japanese

investment that flowed into the country in 1987 exceeded the

cumulative Japanese investment for the preceding 20 years.

By 1996, about $48 billion worth of Japanese direct investment was

concentrated in the core ASEAN countries of Indonesia, Singapore,

Malaysia, Thailand, and the Philippines. In FY 1995, the ASEAN

countries received 10.6 per cent of Japan’s total foreign direct

investment, in contrast to only 7 per cent in FY 1990.

Formerly focussed mainly on raw material extraction, Japanese

investment in the late eighties and early 1990’s was aimed as turning

ASEAN into an integrated production base for Japanese conglomerates

that assembled manufactures for export to the US, Europe, and Japan

itself. And as economic growth spawned a middle class in the ASEAN

countries, the region itself became an important consumer of Japanese

products.

Foreign direct investment was, of course, but one channel of Japanese

capital. The region was the prime recipient of Japanese aid, as well

as a favoured destination of Japanese bank credit. For instance, in

1996, 40 per cent of the foreign debt of Thailand’s private sector

was accounted for by loans advanced by Japanese banks.

The critical importance of Japanese investment to ASEAN was

underlined in a recent report of the Japan Economic Institute: “By

virtually any measure, corporate Japan’s presence in Southeast Asia

is massive. Japanese affiliates employed an estimated 800,000 people

across ASEAN economies in 1994, and the figure rises yearly. In a

number of key industries Japanese firms have staked out a commanding

regional position. Matsushita Electrical Co. Ltd’s operations alone

are said to account for between 4 per cent and 5 per cent of

Malaysia’s gross domestic product. Japanese manufacturers currently

control about 90 per cent of the automotive market in most ASEAN

countries.”

Portfolio Investors Move in

The prosperity triggered by Japanese investment was critical in

turning Southeast Asia into a prime destination for global capital

flows in the early 1990’s. Especially attracted were the mutual and

hedge funds that tapped into the vast pool of savings and pension

funds in the North and ploughed them into profitable short-term

investments. With interest rates and stock prices at low levels in

the United States, Japan, and other industrial markets, these funds,

much of them American, were steered to “emerging markets” in search of

higher returns. And with their high growth rates fuelled by Japanese

investment, East and Southeast Asian countries became key magnets for

speculative capital.

The attention was not only welcomed; it was cultivated. In Thailand,

economic managers saw portfolio investment as a valuable supplement to

Japanese direct investment to fill the gap between limited domestic

savings and the massive capital investment that was required to keep

the economic miracle going. At the same time, since much of these

funds were American, the portfolio investment inflow would ease what

until then was an overwhelming dependence on the Japanese.

For the Philippines, which had missed out on the vast movement of

Japanese capital into Southeast Asia in the late eighties owing to its

political instability, portfolio investment inflows, mainly from the

US, were seen as the engine that would allow it to catch up with

neighbours that had been launched into high-speed growth by Japanese

investment.

In varying degrees, most Southeast Asian governments adopted policies

to attract portfolio investment or what some writers termed “hot

capital.” Three measures, in particular, were put in place:

First, foreign exchange restrictions were abolished or eased, stock

exchanges were opened to foreign investors, and foreign banks were

attracted with more liberal lending rules, including allowing making

dollar loans to local borrowers.

Second, interest rates were kept high–higher than comparative

benchmarks like US interest rates–in order to suck in foreign

capital.

Third, the local currency, while not formally fixed to a particular

rate of exchange, was informally pegged to a stable rate of exchange

to the dollar via periodic interventions in the foreign exchange

market by the central monetary authority. This was to eliminate or

reduce currency risk for both foreign investors and local borrowers.

Net portfolio investments to the region rose from an annual average

of $1 billion in 1985-89 to $4 billion in 1993, according to the

Asian Development Bank. The figure had gone considerably higher by

1996, with Philippines alone drawing in $9.4 billion worth of foreign

capital, some 75 to 80 per cent of which was portfolio investment.

Thailand’s Bangkok International Banking Facility attracted over $50

billion in just three years’ time.

Foreign Investors Fuel the Real Estate Crisis

It soon became clear, however, that portfolio investment was not an

unmixed blessing. They were, for one, extremely volatile, coming in

one day, leaving the next, as it were, in search of higher return

elsewhere. As the managing director of the Philippine Central Bank

put it, in an era of globalised markets brought about by financial

liberalization, billions of dollars worth of funds can be moved across

the globe “at the tap of a finger.”

Also, these funds zeroed in on those parts of the domestic economy

that promised a high rate of return with a quick turnaround time, and

invariably, from Bangkok to Kuala Lumpur, this was the real estate

sector. Manufacturing and agriculture were dismissed as low-yield

sectors, where decent rates of return to capital could, moreover, be

achieved only with significant amounts of investment over the long

term. Mutual fund shareholders and hedge fund bondholders could not

wait that long.

Not surprisingly, the property sector soon became overheated in

Bangkok, Manila, and Kuala Lumpur. By 1995, the inevitable glut came

to Bangkok, with the consequent domino effect of developers with

unsold spanking new residential and commercial units dragging their

financiers into bankruptcy with their non-performing loans. With

similar gluts expected to develop in Manila, Kuala Lumpur, and

elsewhere, portfolio investors began to grow skittish and withdraw

their capital from these markets, resulting in plunges in stock market

indicators throughout the region.

It was this growing lack of confidence among foreign investors that

created the climate for the recent speculative attacks on the Thai

baht, the Philippine peso, the Malaysian ringgit, and the Indonesian

rupiah. A currency is only as strong as the “fundamentals” of the

economy, as investors say, and with their widening current account

deficits, anaemic local manufacturing sectors, troubled or stagnant

agricultural sectors, and overheated real estate sectors, the

fundamentals of most of the ASEAN countries are starting to look bad.

The Decline of Asian Capital Markets

Portfolio investment inflows into Thailand are drying up, and though

probably not as drastically, inflows into Malaysia, the Philippines,

and Indonesia are also expected to decline. The new darling of the

fund managers are Latin American markets, which rose almost 40 per

cent on average this year as Asian markets fell by five per cent. As

the Financial Times points out, Brazilian equities, which have risen

70 per cent since the end of the year, look very good to fund

managers. So do Russian equities, which have more than doubled since

the start of this year, and Chinese “red chips,” which have gone up by

90 per cent. It might be sometime before the investment analysts

encourage their customers to go “overweight” in Southeast Asian bonds

 

and equities.

Japan’s Strengthened Position

Will foreign direct investors now follow portfolio investors in

drawing down their presence in the region? With the slow growth in

the region’s exports and the spread of deflationary tendencies, new

foreign investors are likely to be deterred from making new

commitments.

Ford and GM, for instance, are now probably regretting their decisions

last year to invest in major car assembly plants in Thailand, based as

they were on erroneous judgments that the automobile markets in that

country and the rest of region would continue to grow at a torrid

pace. In the case of Thailand, the projection that it would be the

world’s fourth largest market for cars was based on the expansion of

consumer credit. With the credit crunch, however, cars are not being

sold; they are being repossessed from insolvent buyers by finance

companies that are also facing bankruptcy.

But while these conditions may scare off prospective American and

European investors, they are likely to have much less impact on the

Japanese, who are far ahead of their American competitors in making

the region an integrated production base. In Thailand alone, more

than 1,100 Japanese companies are well ensconced and only a massive

economic downturn can reverse the momentum which has built up. As one

Japanese executive told The Nation, “It [Japanese investment] is a

long term investment strategy where investments are increased on a

year-to-year basis, so I don’t think a 10 to 20 per cent de facto

devaluation will force Japanese investors to change their investment

strategies for Thailand.”

Indeed, with most of their production aimed at other markets, a

decline in local demand owing to an economic downturn will not have

too big of an impact on the profitability of Japanese firms. In fact,

it may well work to their advantage by dampening the pressures for

wage raises. At the same time, with the assets of many Thai companies

being downgraded by devaluation and debt, Japanese investors may take

advantage of the current crisis to buy a controlling interest in local

firms and extend their reach into the local manufacturing sector.

In sum, though the financial crisis sweeping ASEAN may well mark the

end of the Southeast Asian miracle, its long term result may be a

strengthening of the already dominant position of Japanese capital in

the region.

*Walden Bello is co-director of Focus on the Global South, a program

of policy research of Chulalongkorn University in Bangkok, and a

professor of sociology and public administration at the University of

the Philippines. He is the author of several books on Asian

development. He is currently a book on Thailand’s economic

development, A Siamese Paradox: Development and Degradation in Modern

Thailand.

———————————————————————-

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Focus-on-Trade #17, end part 2 of 2

 

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Focus on the Global South (FOCUS)

c/o CUSRI, Chulalongkorn University

Bangkok 10330 THAILAND

Tel: 662 218 7363/7364/7365

Fax: 662 255 9976

Web Page http://www.focusweb.org

Staff email addresses:

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Walden Bello W.Bello@focusweb.org

Kamal Malhotra K.Malhotra@focusweb.org

Chanida Chanyapate Bamford C.Bamford@focusweb.org

Junya Prompiam J.Prompiam@focusweb.org

Nicola Bullard N.Bullard@focusweb.org

Joy Obando Joy@focusweb.org

Focus Administration admin@focusweb.org

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