Southeast Asia Economy

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.

An Indonesian armada of frigates, destroyers and armored landing craft sailed into Manila Bay on Friday, carrying helicopters, bulletproof limousines and troops. The Malaysians also sent a navy gunboat. The Bruneians were taking no chances either. That wealthy Borneo island nation this week sent two of Sultan Muda Hassanal Bolkiah's bulletproof Rolls-Royce automobiles for the occasion. The reason for such goings on is a meeting beginning Monday of the heads of state of the Assn.

This is the year the rains didn't come to Southeast Asia. Sun and heat conquered the land, and the paddies dried up, turned into a great expanse of cracked rust-red earth that yielded little but brown tufts of dying rice. "These fields you see," said Bienvenido Gatus, Candaba's mayor, his hand sweeping toward the horizon, "should be under 5 feet of water this time of year. Normally, we couldn't have even driven out here on this road. It'd be flooded too."

What can seven of the world's poorest nations, whose bilateral ties run the gamut from friendship to enmity, do to better those relations and their citizens' lives too? In the Himalayas, 7,250 feet above sea level, ensconced comfortably in Simla, once the hot-weather capital of India's former British rulers, leaders from the South Asian Assn. for Regional Cooperation pondered and discussed that question Wednesday. The association turns 10 this year.

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.

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.

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.

Will Southeast Asia's shattered stock markets recover quickly, or are they doomed to suffer a prolonged hangover? That's the question confronting mutual fund shareholders who might be tempted to expand their Asian holdings following the collapse of key markets in recent months. There's little doubt that stock prices in the region will recover eventually as economic development continues, albeit at a slower pace. The key issue is how long the healing process might take.

Jariporn Kiatsamphan, a 44-year-old Thai housewife, scanned the flashing electronic board in front of her with a look that turned instantly from hard-edged suspicion to undisguised joy. "I've made a lot of money," she acknowledged frankly, "but I want to make more profit. There are lots of opportunities to get rich here."

The declining fortunes of Thailand and its Southeast Asian neighbors have virtually destroyed the local market for the giant stuffed animals produced at Ekvadee Sangrose's small family-owned toy factory. But the slowdown has given her time to plot her next move. "Maybe I could improve my quality and sell to the United States," she says hopefully.