Asian tigers lick wounds and blame the West

BOOK shops in Singapore are prominently displaying bestsellers on two hot subjects - the late Diana, Princess of Wales, and the international investor, George Soros.

Beside stacks of Robert Slater's biography of Soros in the MPH bookstore is a display of newspaper cuttings which explains why the Hungarian-born billionaire is attracting such interest here. He and other international investors, known as the "Funds" are widely blamed for the crisis which has ripped out the toe nails of southeast Asia's emerging tigers, felling currencies and plunging stock markets to new lows.

In one of the articles, Malaysian Prime Minister Mr Mahathir bin Mohamad describes the world's biggest single investor as one of the "ferocious animals" lurking in the financial undergrowth, and accuses Soros of making his people poorer by 10 per cent.

"As far as I am concerned," he said on August 28th after Malaysian and other neighbouring currencies hit new lows, "Soros has stolen our money". Such accusations are not new. The name Soros was bandied about in Dublin during the punt crisis in January 1993. In his biography, Robert Slater, a former Time reporter, recalls that Soros made $1 billion on "Black Wednesday", September 18th, 1992, when he helped force John Major to pull sterling out of the ERM.

But bankers and financial analysts in Singapore this week painted a more complex picture of the currency and market crisis in south-east Asia, where once stagnant economies have been enjoying growth rates of 8 per cent and more. The finger of blame is pointed not so much at Mr Soros - whose role remains unproven - or the Funds, but at the government in Thailand, where the crisis began on Wednesday July 2nd, a date which will go down in Asian history as the day the Asian boom fizzled, at least for now.

Thailand epitomised the "Asia miracle", with high-rise construction, new shopping plazas, free-wheeling bank loans and "no-money-down" car sales. But it was not underpinned by savings and most of the hot foreign money on which it depended was invested in stocks and loans rather than in manufacturing projects. Overseas debts this year reached the level of Mexico's before the 1994 peso crisis. Exports slowed down. In these circumstances the currency could not keep up with the strengthening dollar.

The Thai baht had been fixed at 25 to the dollar since the early 1990s and was overvalued, said Mr George Yates, head of treasury for AIB's Capital Markets office in Singapore. "Whether it was or not is not important now. What mattered was perception." The perception was that something had to give.

International currency traders began selling bahts, but hardly anyone wanted them. "Maybe it was Soros, maybe it was American investors, we don't know," said Mr Yates, "but somebody decided to take on the Thai authorities and drag it out of its artificially-imposed band."

Mr Angus Armstrong, chief economist Asia, for Deutsche Morgan Grenfell, agreed that distortions arose from the pegging of two currencies with different economic cycles and conditions. In his opinion there was speculation from the Funds, but Thailand's fundamental problem was over-investment and a fragile banking system, which was now "in a coma".

As selling of the baht accelerated, the Bank of Thailand made an unsuccessful rescue effort and then freed it from the dollar peg on July 2nd. The baht crashed immediately from 25 to 32 to the dollar.

The contagion spread quickly. Just as in 1994 when the Mexican crisis occurred, currencies in countries with similar problems slumped. "The lemming instinct took over, and a lot of it was not justified," said Mr Yates. "It was like the UK in 1992," said a Singapore financial consultant. "Rising unemployment, current account deficit, interest rates too high: if you have money invested in such an economy what do you do? You take it out."

Indonesia, whose bankers are highlyrated in south-east Asia, had been doing what Thailand should have been doing, carefully devaluing its currency against the dollar by 4 per cent a year to prevent a crash. But now the Indonesian rupiah also began to look uncompetitive.

Investors in places like New York began pulling out their money from the region as a whole, and the currencies of Thailand, Indonesia, the Philippines and Malaysia plummeted (Singapore and Hong Kong with developed economies survived relatively intact and fought off attackers).

"Nobody anticipated devaluation so no one had hedged their foreign currency borrowings, and suddenly everyone wanted to hedge in dollars," said a banking expert over a beer in one of Singapore's financial district bars where people socialise with mobile telephones to their ears.

"It's like nobody had insured their house because there had been no fire for years, then suddenly three houses burn down and everyone wants cover."

For the 20 million population of Thailand, which dreamed of becoming a regional finance centre, the party is over. A $16 billion IMF-World Bank loan package failed to stop the slide in the baht which continued this week. "Thailand is not going to go bankrupt but it will go through an economic recession which will be extreme," forecast Mr Armstrong.

He also thought it would be a long time before money came back in to the region, and that growth in ASEAN countries, apart from Singapore, would slow by 1 to 2 per cent. "People are talking about `stagflation'," said a broker. "They are anticipating higher inflation, higher interest rates and a weaker currency. And this will slow the growth rates."

The reaction to the currency crisis in Malaysia, where development of large infrastructure projects has been pushed ahead fast, was to lash out at the west. Forty years after independence, its achievements include a national car, a planned high-tech city, a satellite, and conquering Mount Everest.

On August 30th, after the Malaysian ringgit lost 18 per cent against the dollar since July and its stock market dropped 35 per cent, Prime Minister Mahathir declared bitterly, "We have seen how easy it is for foreigners to bring down our economy by deliberately lowering the value of our currency and stock market."

He accused the International Monetary Fund of subverting their economy "just to prove that they are right". Bankers in Malaysia, which has itself in the past speculated with billions of dollars in foreign exchange markets, called on the government last Sunday to punish "traitors", including analysts and journalists who wrote negative articles about the economy. The head of police recommended the indefinite detention of bankers, financiers and investors who "manipulated" the currency and share prices.

"Soros can forget about going to Kota Bharu (a popular Malaysian resort) for the weekend," said a Singapore-based financial consultant. But he added on an upbeat note. "What we are seeing is part of a growing-up process. It's not just Soros sitting in his office and saying `let's take out Thailand'. The fundamentals were wrong. The situation needed a sharp and painful correction. There's a bit of unfair contagion from Thailand. But the others will pull out of it."

All the experts in Singapore agree on this: that there will be a recovery because the fundamentals will improve - as happened in Britain. With high education standards, low tax rates, a good level of saving and commitment to growth and foreign investment, a new business cycle will soon be under way. But nobody is betting on the timing, just yet.