Asian Adviser - November 1996
Most of the region's central banks are relying on the current export slowdown reversing itself into 1997 Q2. What if conditions do not go Asia's way though? Specifically, what if we get an extension of weak global demand and a strong USD which is a pretty nasty cocktail. This combination precipitated the ASEAN recession of 1985-86. Current accounts will widen further and sentiment towards ASEAN currencies will deteriorate leading to an involuntary squeeze. Asset quality will subsequently be called into question; especially in those markets where real estate and stock market speculation has been excessive in recent years.
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A further complicating factor this time round is the accumulation of net foreign liabilities in banking systems as a result of global appetite for high yield. This is all fine and dandy while expectations are that the domestic currency will remain stable, or will even appreciate if the system's currency mismatch becomes significant and suddenly attitudes towards the currency reverse, immense strain can be placed on financial balance sheets as the currency weakens and/or the risk premium adjusts sharply upward.
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Asian Adviser - March 1997
What are the implications for Asia of a JPY above 120? The region will be starting to feel the pain in terms of its competitiveness. More so, if one looks at labour cost-adjusted exchange rates.
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If the Thai situation were unique in the region we would of course be a lot more sanguine about Asia's prospects this year. However, because many of the excesses of Thailand (over-investment, external debt currency mismatches, financial sector exposure to property with dubious collateral value, etc.) are evident elsewhere in Asia, the contamination risk from a forced THB devaluation is high. The countries most in the immediate line of fire, Philippines, Indonesia and Malaysia, can only sit there and hope that there is not a spill over.
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Asian Adviser - April 1997
Thailand's excesses may have been worse than many but are far from isolated. The endgame must surely be a weaker THB. The choice in Malaysia appears to be between slower growth and a weaker currency. We suspect the latter route will be chosen.
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Allowing Korean corporates to go out and borrow even more overseas (instead of exhorting them to cut investment) is akin to giving a pyromaniac a flame thrower as soon as he has used up his last match.