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In S.E. Asia, Peril Now Is Complacency

Optimism Runs High, but Economists Worry About Recovery's Staying Power

July 29, 1999|DAVID LAMB | TIMES STAFF WRITER

SINGAPORE — Soaring stock markets and healthier economic indicators are fueling optimism that the recovery starting to lift Southeast Asia out of its worst recession since World War II may have legs and strength.

But few economists are willing to declare the patient or its disease cured. They say the recovery could unravel if governments fail to follow through on reforms. And they worry that a fast recovery could dilute the sense of political urgency that forced governments to take action in the first place.

"There is a danger of complacency now," said Bruce Gale, a Singapore-based analyst for a political and economic risk consultancy. "A feeling could set in of, 'Oh, we've done enough. We don't need to push ahead with any more reforms.'

"Look at the Philippines," Gale said. "Their attitude seems to be, 'We've already taken our economic medicine.' The Philippines is just sitting back now and not moving ahead with further reforms to consolidate its position."

Still, the region's mood of growing optimism was particularly noticeable at the Assn. of Southeast Asian Nations' regional forum here this week.

Last year's meeting was gripped by gloom over worsening economic conditions. This year, with economies on the mend, the focus shifted to regional security concerns, as one government after another spoke in upbeat terms about the success of their economic reforms and the pace of recovery.

"We are encouraged by signs that the worst is over," U.S. Secretary of State Madeleine Albright told the forum's foreign ministers.

So, to be sure, are 500 million Southeast Asians who saw their economic miracle destroyed almost overnight--and are now holding their breath that the recovery will carry the region back to prosperity.

Whatever the revival's staying power turns out to be, the social toll of two years of economic turmoil has been tremendous--20 million out of work in Indonesia, a middle class devastated in Thailand, hunger in the Philippines. And everywhere, a widening gap between rich and poor and millions of people who have had to learn to live with uncertainty.

"Business was down to a trickle when the peso plunged," said David Limsico, 44, owner of a small restaurant in Manila. "So I modified my menu, offered special meal packages. Last year I got back to the break-even point. This year I'm nearly back to pre-crisis levels. And I've kept the restaurant alive without laying anyone off. I think we'll be OK."

'Sailing Toward High Seas Again'

Philippine President Joseph Estrada struck an even brighter chord Monday in his state of the nation address. "Last year," he said, "we were struggling to keep ourselves from sinking. Today we are sailing toward the high seas again."

Indeed, in the last six months, currencies throughout Southeast Asia have strengthened and stabilized. Interest rates have fallen. Inflation is down. Consumer confidence is up. Exports are slowly rising. And stock markets have turned in some of the best performances in the world, with Indonesia's up 50% this year, Singapore's 49% and Thailand's 30%.

"The run-up in the markets certainly indicates that investor confidence is returning," said Anand Aithal, an analyst with Goldman Sachs in Singapore. "Foreign money was the first to come back into the markets. Then the local money.

"Reform doesn't always come as smoothly as we'd like, but the important thing about the reforms happening now is that they are permanent."

Although the crisis led to a change of governments in Thailand and Indonesia, riots in Jakarta and political instability in Malaysia, participants at the ASEAN forum were heartened that the worst-case scenarios feared by some in 1997 never happened.

Indonesia did not disintegrate, although 1,200 died in Jakarta's riots. There was no violent backlash against the West, even if the International Monetary Fund did come in for plenty of criticism for prescribing the wrong medicine with its Asian bailouts. The countryside, where the majority of people live, fared much better than the cities, where the violence and economic despair were centered.

Nonetheless, the crisis did jolt governments into making long overdue reforms, which, combined with a strong U.S. economy that pulled along its Asian trading partners, have helped to lift the region out of recession. Most analysts say the initial reforms represent just the beginning of the economic restructuring Southeast Asia must do to return to prosperity.

Thailand, for instance, set up its first bankruptcy court last month. Now the question is whether the 60 judges will do their job and declare anyone bankrupt.

"The problem with the markets is that confidence could evaporate as quickly as it appeared, and then where are we?" said Gemi Supriyadi, 33, a Jakarta importer-exporter of agricultural commodities. His complaint: Singaporean companies have been rejecting his letters of credit because the Indonesian government still hasn't gotten around to forming a proper board to guarantee such letters.

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