Southeast Asia Economy

Southeast Asia's economic revival in the three years since it was struck by a crippling financial crisis will figure high on the agenda of gatherings this week by foreign ministers. Officials of 10 countries of the Assn. of Southeast Asian Nations will confer among themselves and with dialogue partners including the U.S., China, Japan, South Korea and the European Union during annual meetings starting today.

When it's going your way, capitalism naturally seems like the only logical economic system. What's not to like about the gloriously healthy U.S. economy and the ever-rising stock market, for instance? But when capitalism goes awry, the cost in human terms can be devastatingly high. And suddenly the wisdom of abiding by a free-market system is lost on many people.

So far, investors appear to believe that the currency devaluations in Thailand and the Philippines were the right medicine. In Thailand, the main stock market index has surged to 628.55 from an eight-year low of 464.77 on June 19, for a gain of 35%. In the Philippines, the composite stock index rocketed 190 points on Friday, or 7.6%, to 2,701.14, immediately after the nation's central bank stopped defending the peso. The index still is down 15% year-to-date, however.

Japan, confronted with tottering financial markets across Southeast Asia triggered by devaluation of the Thai baht, is scrambling to organize an international bailout that could stabilize economies in Thailand and the region. Japanese and U.S. sources said Monday that a $20-billion loan package is taking shape for Thailand that would be led by Japan and supported by the International Monetary Fund. The U.S. Congress was briefed by Treasury officials on the volatile Southeast Asian situation.

Many emerging-market currencies weakened further Monday and early today, as speculators and investment funds sold the currencies on the expectation of widespread devaluations. The Thai baht and the Philippine peso, both of which were officially devalued over the last two weeks, fell further Monday, although the baht appeared to stabilize early today. The baht tumbled to a record-low 30.80 to the dollar Monday before the Thai central bank intervened to support it.

In a confrontation with an increasingly important ally, the United States on Monday bluntly castigated Malaysia on highly sensitive economic and diplomatic issues during Secretary of State Madeleine Albright's final day of talks with leaders of the Assn. of Southeast Asian Nations, or ASEAN. Senior U.S.

The fall of the once high-flying Southeast Asian stock markets is accelerating dramatically this week with steep declines across the board, and analysts call it the price that developing countries must sometimes pay when joining the world's hot-wired financial system. Led by the Philippines--where stocks plunged a whopping 9.

At the annual World Bank conference over the weekend, two men on opposite sides of the region's economic crisis--the speculator and the statesman, the accused villain and the alleged victim--had a showdown, firing off words like "moron" and "menace." "It's 'High Noon' in Hong Kong," said a World Bank official.

As its "economic miracle" unfolded in the decades after World War II, a common description of Japan's export-focused relationship to the much larger U.S. economy was that Japan would catch a cold whenever America sneezed. This year, as currency devaluations, plunging stock markets and economic slowdowns buffeted Thailand, then the Philippines, Indonesia and Malaysia, the old joke was turned sideways: Now it is Southeast Asian pneumonia that threatens to give Japan a cold.

San Diego businessman Richard Franke didn't even bother stopping in Bangkok on a trip to Asia earlier this month. This summer's 40% plunge in the Thai baht had priced his firm's blood pressure monitors out of that market. Instead, he went to Malaysia to help out a new distributor shaken by that country's similar woes. And now he is closely monitoring the Hong Kong stock market, looking for signs of problems that would threaten his sales to mainland China.