Maclean's Article
MACLEAN'S MAGAZINE
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January 26, 1998 PAGE: 56
BYLINE : Peter C. Newman
COLUMN : The Nation's Business
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CANADA CANNOT AVOID THE FALLOUT FROM ASIA: Successful stock promoter Robert Friedland says the Southeast Asian crisis will produce a `disaster for the Canadian worker'
The unabated free fall of Southeast Asia's major economies has created a tsunami of damaging economic tidings, about to wash up on our shores. We are no more safe from the consequences of the massacre from the region's once-powerful economic `Tigers,' than Eastern Canada has been immune from weather usually reserved for the impassable reaches of the furthest Arctic wastes.
`What we've got developing here,' I was told in an interview with billionaire Robert Friedland recently, while in Singapore just as the crisis was gathering speed, `is a disaster for the Canadian worker. They don't really understand what's coming at them. Nobody will be able to compete with Thailand or Taiwan, and particularly the South Koreans, who are going to be incredibly vicious exporters next year. Their only way out of the current crisis is to push their stuff out the door at any price - and they can produce almost everything cheaper than anybody else. Just think of the impact of $3,000 Hyundais hitting the Canadian car market. Already, Taiwan has shown an 80-per-cent increase in the export of electronics and computers to North America. There's a lot more to follow.'
Friedland, the Vancouver stock promoter who is responsible for bringing to market the $7-billion-plus nickel, copper and cobalt discovery at Voisey's Bay in northeastern Labrador, moved to Singapore shortly after making an estimated $500 million for his Labrador stake, which he sold to Inco. His current mining activities are spread throughout that part of Southeast Asia suffering its most acute financial crisis since the Second World War.
`We appear to be in a period of competitive devaluations of currencies amongst these Tiger economies,' he says. `They must export their way out of the trouble they're in. They have no other choice. Too long, their currencies have been tied to the American dollar, and the strength of that dollar has meant they were becoming less and less competitive. Also, too many people have built too much export capacity around the same things, making more electronic products and automobiles than can possibly be absorbed.
`Despite the present problems, the productive capacities of economies like South Korea, Taiwan and China are so fantastic, their labor rates so low, the manufacturing productivity so high, and the willingness of their workers to work hard for low wages so well-established that we're heading into a long period when everything produced in Asia will not be merely competitive, but radically - and I mean radically - cheaper than anywhere else. By the summer of this year, you're going to see every conceivable product landing in North America at impossibly low prices.'
Friedland admits that there continues to be a lag between the harsh reality of the situation and any understanding of what this phenomenon is going to mean, once its fallout hits Canada. What he fears most is that the impact of the massive influx of cheap foreign goods will revive the clamor, especially in the U.S. Senate, for the erection of protectionist barriers, which he describes as `the same paradigm that the world faced in 1929,' just prior to the Great Depression.
`The ultimate bogey man is no longer inflation,' he insists. `The real problem is how we prevent an integrated world economy, faced with the current Asian crisis, from triggering a round of other deflationary incidents. Once people understand that deflation is a much more scary phenomenon - because it means things are declining in value - you could have a reaction that would increase the value of hard assets, such as gold, copper and other metals.
`But for the time being, the world is clearly in a rush towards liquidity, and that means being measured against American dollars and U.S. Treasury bills. The value of everything on the planet is heading down against the American currency. That means not only the worth of the Asian economies is evaporating, but the value of the Canadian economy is dropping, the value of Australia is going down, and so on - all except England, where the pound sterling remains a strong, well-managed currency.'
Friedland's speculation about revived values for gold and copper may be wishful thinking. Shares in Indochina Goldfields, which specializes in gold and copper prospects, have lost more than 80 per cent in value over the past 12 months. His stake in Inco is similarly depressed, as that company struggles with sharply reduced nickel prices and the huge cost of bringing the Voisey's Bay deposit into production. (The value of Inco stock has dropped from a 1997 high of $19 to $2.50 at the end of trading last week.)
What Friedland envisages - and last week's continued hammering of Asian currencies and stock prices only makes his case stronger - is not merely a quantitative shift in the price levels of Asian exports to North America, but something much more serious. `The South Korean won and most other Asian currencies have lost more than half their value. As they keep dropping, these countries will not be able to afford North American goods, not our pulp or paper, wood or coal, so Canada will get dragged down in the process. I can see the Canadian dollar at 60 cents.'
Despite his short-term gloom, Friedland predicts some long-term benefits from the Asian debacle. `This crisis will trigger a number of gut-wrenching adjustments, but it will also sow the seeds of the region's economic rebirth,' he forecasts. `The Asian economies will eventually come back with an incredible vengeance, much more efficient and much less corrupt - leaner and meaner than ever.' |
