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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (566)	1/8/1998 9:08:00 AM
From: Thomas Haegin	Respond to of 9980

Yiwu, thanks for sharing some info on yourself. Pls be around, Tom -e

To: RealMuLan who wrote (566)	1/9/1998 12:03:00 PM
From: RealMuLan	Read Replies (1) \| Respond to of 9980

This is from this week's AsiaWeek: Indiscriminate Slaughter The cash crunch must not be allowed to sink sound Asian firms IMAGINE AN INDONESIAN COMPANY with attractive products, steady customers and well-trained workers. Following the rupiah's 65% collapse against the dollar, it suddenly finds that its debts have ballooned and bank credit has dried up. If it cannot cope, market logic dictates that it should fail. Result: jobs will be lost, customers orphaned, and creditors not repaid. Certainly, East Asia needs to shake out its crippled financial systems, clean up its huge bad debts and give up on its hopeless companies. Businesses, banks and governments must also untangle the murky links among them that fed the crisis and allowed it to fester unnoticed for so long. And the International Monetary Fund and the global financial community need to help ensure that painful but necessary reforms are carried through. But all the cleaners must also remember that the purpose of the whole exercise is to create economies where healthy, well-run companies can thrive. No one benefits when such enterprises are squashed during the mopping up. A liquidity crisis is threatening to undermine even Asia's best-run businesses. Liquidity is simply the availability of money to buy goods and services, finance imports and exports, pay wages and so on -- all the myriad things businesses do every day. It requires a functioning banking system. But now banks are afraid to lend or may not have the cash, especially foreign currency. So all those things that businesses do are starting to grind to a halt. Thai and Indonesian executives complain that even profitable ventures cannot obtain financing, threatening their existence. In South Korea, Finance Minister Lim Chang Yuel estimates that 100 companies have close encounters with insolvency each day because credit has been reduced to a trickle. While shaking out Asian financial systems, banks, governments and the IMF should seek ways to ease the effect of the liquidity crunch so that sound businesses are not swept away with the bad. Ideas have begun to emerge. The decision by Japanese and Western banks in late December to roll over short-term obligations in Korea for a month prevented liquidity there from drying up -- at least this month. More rollovers and extensions are needed, not just for Korea but elsewhere. A stumbling block has been the way Asia's problem debts are spread across thousands of companies, unlike the 1995 Mexican crisis that was centered on government debt. That makes any initiative harder to implement. One way around the problem would be to consolidate the private obligations under governments. U.S. bank J.P. Morgan recently suggested that Seoul buy Korean bank debts using funds from bond issues, turning a slew of short-term debts into a unified long-term obligation. While other creditors have resisted such an idea, something along those lines must be worked out soon to keep the weak but viable alive. After all, the ultimate resolution of the debt problem requires debtor companies to generate income in order to pay back what they borrowed. As in the past, international lenders are using their clout to make countries adopt IMF austerity policies designed to conserve foreign exchange needed to pay for imports and loans. But that approach can work against the lenders by choking off the economic growth needed to generate income. In the scramble among lenders to call in their chits, a few here and there may get their money back. But the great majority of the debt will be cast in doubt if an economy slips into depression due to a fatal liquidity drought. Care must be taken, however, not to bail out failed debtors. Resources are limited and governments should adopt a three-pronged approach -- asking the walking wounded to take care of themselves, letting the terminally ill go, and assisting those capable of surviving. That will not be easy, since many of the most-indebted companies got that way while exploiting official ties or corrupt practices to expand. They must not be allowed to use the same means to gain a new lease on life. Letting the failures go under pays the additional bonus of conserving precious foreign exchange. After all, the bankrupt by definition do not repay all their loans. That leads to a difficult question: Should the foreign creditors of Asian bankrupts be repaid by governments? It should be remembered that the loans were market transactions at interest rates taking account of all risks, including default. If currency markets had not been roiled, neither governments nor the IMF would have intervened. Now, because the IMF is involved and nations are worried about market confidence, foreign creditors who lent money to bankrupt borrowers stand a good chance of repayment in full if governments take over the debt. This could be a mistake. Like banks in Asia, foreign creditors should live by the rules of the market. The IMF, Asian governments and the world financial community should decide how best that lesson can be taught. Meanwhile, all efforts should be made to help solid companies in Asia operate through the cash crunch. Lenders as well as borrowers will have to display some flexibility and yield a little. But the sooner businesses and economies are growing again, the sooner everybody -- borrowers and lenders -- will be back to making money.