Turmoil in Asian markets

Governments in Southeast Asia may fall because of their weak response to the crisis. "Political leadership in many Southeast Asian countries is based on their ability to guarantee strong growth, rising incomes," said one Singapore analyst. "The crisis is going to strain the legitimacy of some of these governments, and challenge these structures."

The Thai baht slipped to a new all-time low as the embattled prime minister, Mr Chavalit Yongchaiyudh, clung to power after the resignation of his entire cabinet ahead of a major reshuffle of power within the ruling coalition.

In Jakarta, talks between Indonesian finance officials and the International Monetary Fund (IMF) on a possible package to help Indonesia face its currency crisis were in their final stages, an official said.

But regional analysts predict more pain ahead for Southeast Asia's economies.

"No, we haven't hit bottom yet, not by a long shot," said Mr Kanika Singh, an economist with Independent Economic Analysis in Singapore. "Next year is going to be very, very painful."

Although currencies and markets have plunged across the region, each country confronts a particular set of economic problems, ranging from Thailand's weak banking sector to Indonesia's current account deficit to Malaysia's self-declared war on speculators.

Analysts say even relatively stable economies like Singapore's may suffer because of their dependence on neighbouring countries for trade and their exposure to troubled foreign ventures.

One Singapore-based analyst said: "There'll be lower growth, inflation, property price deflation, downgrading, corporate defaults. Until all this credit risk is priced into the market, we'll see no recovery."

Forecasts of when regional currencies will stabilise - and at what level - differ wildly. But that will not be the end of the story. Once the currencies find a stable band, there will be "painful adjustment", according to Mr Daniel Lian, head of Asian markets research at ANZ Investment Bank, while economies undergo years of restructuring.

One of the main causes, he said, is that China has become very competitive, and stolen export markets at the expense of Asian tiger economies like Thailand.

How long each nation takes to recover will depend on national policies. "As far as the currencies are concerned, ultimately it's an issue of inflation," said Mr Bernhard Eschweiler, head of Asia-Pacific economic research and equity strategy at J P Morgan.

Published in the Sydney Morning Herald. Oct 22, 1997