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To: Mohan Marette who wrote (73047)	10/20/1998 1:46:00 PM
From: Eddie Kim	Respond to of 176387

Nothing wrong with wishful thinking.Your lack of optimism is really underwhelming however the evidence shows that the world economy might be in much better shape than a few months ago,might not be a whole lot better but enough to change the sentiments of many pundits and sentiments counts a lot in this biz as you know. Don't take too much time to rethink your position 'cos if you do you just may miss the proverbial boat. Geez...this attitude sounds very familiar. I just can't recall whether it was before the DOW/NASDAQ tanked and took DELL with it or after. Hmmm...

To: Mohan Marette who wrote (73047)	10/20/1998 1:59:00 PM
From: Rif Kamil, M.D	Read Replies (1) \| Respond to of 176387

Mohan:Improving east-Asian economies? This is from the latest issue of the Economist. FINANCE AND ECONOMICS The darkest hour comes just before dawn S I N G A P O R E Asia's financial crisis seems to be easing. However, much hard work lies ahead before the region's economies will fully recover Fixing Japan's banks (contd) Economic forecasts Search archive THE turbulence that began in East Asia 15 months ago has now battered most of the globe. Other emerging economies have fallen victim, and growing concerns about a credit crunch have led to fears that developed countries—even America—might be dragged into recession. But before bankers, economists and journalists talk the world into depression, they should look again at East Asia, where it all started. It offers the first glimmer of hope. At the very least, financial panic has subsided. During the two months of global market turmoil since Russia defaulted, East Asia has been almost a haven of stability, home to the world's best-performing stockmarkets (see chart). That still leaves markets way below their peaks; and cynics might argue that, since so much capital has already fled the region, things simply could not get any worse. Even so, there are grounds for being cautiously optimistic: the bottom of the market may have been passed. Another hopeful sign is that most interest rates have fallen sharply. Interbank rates are as low as 7% in Malaysia, although that is largely because it has insulated itself from the international markets through capital controls. Far more significant is the fall in comparable rates elsewhere. Since July South Korea's have fallen by eight percentage points to 8.6%; and Thailand's have tumbled from 22% to 9.2%. Despite these lower interest rates, currencies have stabilised or even strengthened against the American dollar. Last week, as the dollar tumbled against the yen, the Thai currency rose to a seven-month high, leading to the unusual sight of the Bank of Thailand intervening to buy dollars. If the dollar's fall is sustained, it would help the East Asian economies in three ways. It would ease fears about an imminent devaluation of the Chinese yuan or the Hong Kong dollar. It would reduce dollar debts in local-currency terms. And a dearer yen would help those economies, like South Korea's, that compete head-on with Japanese producers. Behind this currency stabilisation lies a remarkable improvement in current-account balances. The IMF forecasts that five of the most savagely mauled East Asian countries (Indonesia, Malaysia, the Philippines, South Korea and Thailand) will between them have a current-account surplus of $57 billion this year, compared with a deficit of roughly the same size in 1996. Thailand's current account is forecast to swing from a deficit of 8% of GDP to a surplus of 11%—largely, it is true, because imports have collapsed, but a stunning turnround even so. The most recent reason for cheer is that the Japanese parliament has at long last approved a plan to inject ¥60 trillion ($500 billion, or 12% of GDP) into the nation's sick banking system (see article). There are still big uncertainties about whether and how the money will be used, but it has raised hopes of a revival in Japan. This would create an expanding market for Asian exporters, and even allow Japanese banks to lend again to their Asian neighbours. None of these developments will prevent a huge collapse in GDP this year. The Economist's latest poll of emerging-market forecasters (see article) reports that our panel expects output to fall by 7-8% this year in Thailand and South Korea, and by 16% in Indonesia. Output is also expected to fall in Hong Kong, Singapore, the Philippines and Malaysia. On average, our forecasters expect a further decline next year everywhere except in Taiwan and the Philippines. But the average conceals a huge range: in Thailand, for instance, the gloomiest expects GDP to fall by 4.6% next year, while the cheeriest reckons it will expand by 2.5%. At this week's East Asia Economic Summit in Singapore—a gathering of policymakers, businessmen and economists, organised by the World Economic Forum—several participants were sounding less despairing notes about the region's economies. Many were ready to believe the IMF's latest prognosis: that most economies will bottom out in the first half of 1999, with growth resuming in the second half. Many things might blow this forecast off course, from recession in America to financial collapse in China. And even if the most optimistic forecast proves correct, growth of around 2% would not seem like recovery to people who were used to 8% annual growth. Unemployment has already risen threefold in Indonesia, South Korea and Thailand, and it is bound to climb higher. Financial stabilisation is not enough to ensure robust recovery; these economies still need deep restructuring. A debt threat The most basic need is for capital. The five most troubled East Asian economies have experienced an estimated net outflow of private capital of perhaps $25 billion this year, compared with a net inflow of $94 billion in 1996. Most folk attending the Singapore meeting thought that the rich world was being unhelpful and unfair in not providing more money. Private lenders are being blamed for not supplying trade credit and for being unforgiving with debtors. But, disappointed by the external help on offer, Asians' efforts to sort out their own messes are starting to show some results. The banks are the most urgent problem. Lower interest rates will do little to spur demand if banks cannot lend because of their mountain of bad loans. Deutsche Bank estimates that non-performing loans amount to 35% or more of total bank lending in Indonesia, Malaysia, South Korea and Thailand. Economic recovery cannot get fully under way until banks start lending again. Thailand gets the highest marks so far for reform. Its government has closed down dozens of the weakest financial institutions. In August it announced a programme to use public money to boost banks' capital. South Korea has also made a start, with some closures and a decision to nationalise six of the biggest and most troubled banks. But in both cases this is merely a first step. Governments need to inject public money to take bad loans off balance sheets and to recapitalise banks. Desmond Supple, at Barclays Capital, reckons that the cost of resolving the banking mess could run to 40-50% of GDP in many economies. That is huge, but, as Japan has shown, the longer-term costs of delay are even bigger. The second, related obstacle to robust growth is a massive burden of debt, both domestic and foreign. The East Asian countries' foreign debt is, on average, equivalent to more than 70% of GDP, even bigger than Latin America's foreign debt of 55% of GDP in its crisis in the early 1980s. Worse still, and unlike the Latin Americans, the East Asian emerging economies also have a huge domestic burden of debt. As a result, total debt (domestic and foreign) amounts to more than 200% of GDP in Thailand, Malaysia, Indonesia and South Korea. Such figures suggest that banks' non-performing loans may increase further, hampering recovery still more. There is much that governments in the region can do to encourage debt restructuring. But there is a risk that, without a more helpful response from rich-country creditors, they will shrink from radical corporate and banking surgery. The xenophobic attitudes spreading through the region lend themselves towards bad policymaking. Abhisit Vejajiva, a minister in the Thai cabinet, observes that lack of assistance from foreign governments and private creditors will increase the risk that Asian governments will move “away from first-best policies, towards second-best policies, implemented by third-best officials, serving fourth-best politicians”. If Asia is to lead the world into recovery, as it did into slump, that is a warning worth heeding.