S.E. Asia's Fiscal 'Tigers' Reluctantly Roar for Help
(Page 2 of 2)
The result, in Thailand's case, has been two-and-a-half decades of consistent economic growth, with gross domestic product expanding by anywhere from 5 percent to 12 percent a year.Skip to next paragraph
Subscribe Today to the Monitor
Keeping exchange rates stable has been a key aspect of the bureaucratic oversight, since overseas investors want assurances that their business profits won't be nullified by currency fluctuations.
Often the need for stability has meant government "fixing" of the exchange - linking it to the American dollar or some combination of foreign currencies - and analysts say Thailand has been too slow to move away from this system.
This summer has shown that market forces can't be kept restrained forever.
Currency traders looked at the Thai economy - with a bloated commercial real-estate market and a growing number of financial institutions with portfolios full of bad property loans - and decided the Thai baht was overvalued.
Thai central bankers tried to prop up the value of their currency, but on July 2 decided to let the value of the baht be set by the market.
It immediately lost one-fifth of its value, triggering the weakening of the Philippine peso and other regional currencies like the Malaysian ringgit and the Indonesian rupiah.
Competition from China
Weakened currencies aren't the only wake-up call. The more established economies of Southeast Asia are facing new competition from China, where labor is cheaper and the domestic market is bigger. As Thailand's commercial real-estate glut shows, investment has created overcapacity in some areas, while too little has been spent on education and creating the value-added industries necessary in more developed economies.
"The obvious thing" for Thailand to do now, says Nimit Nontapunthawat, chief economist of Bangkok Bank, "is to reduce consumption and investment that is unproductive." That means encouraging less spending on foreign luxury goods and less investment in real-estate projects in big cities.
Even a casual visitor to Bangkok can't help but notice the huge "sale" signs in front of boutiques bearing foreign brand names and the remarkably cheap price of high-end hotel rooms. (See story at bottom left.)
This crisis isn't causing the region's governments to reevaluate the export-oriented economic strategy that has worked so well so far, but analysts say that Thailand and other countries must begin to think more strategically.
Future prosperity, Mr. Brimble says, lies in investing more in education, upgrading the financial system, and creating the government-backed institutes and partnerships that could enable industries to compete more effectively with those in the most advanced economies.
In the meantime, economists predict that Southeast Asians will have to content themselves with slower growth. Instead of growth rates near 10 percent, economies will slow down and expand by less than 5 percent or so.
"The economies of this region are somewhat overheated," Mr. Nimit concludes, voicing a widespread if unhappy realization.