PM wrong on haze, hope he correct on “no repeat of 1997 crisis’

(Or “1997/ 1998 revisited”)

Earlier this week, PM said: “On balance, I would take a sanguine view. I think the Asian economies are in a stronger position than they were in 1997 when the crisis came. I think we’ve got more safeguards instituted now, over the last decades since the Asian crisis to deal with the likely consequences of big capital flows. CNA

Well, Indonesia’s central bank has raised interest rates for the second time in two weeks as it looks to stem the sharp decline in its currency, the rupiah.

It raised its key rate to 7.25%, the highest level in more than four years.

Indonesia’s currency has dipped nearly 18% against the US dollar since May this year as investors pull out of emerging markets, stoking concerns about the economic impact.

The central bank also cut its growth forecast for the current year.

On Thursday, it said that it now expects the economy to grow between 5.5% to 5.9% compared with its earlier projection of a growth between 5.8% to 6.2%.

That will be the lowest pace of growth since the global financial crisis in 2009.
http://www.bbc.co.uk/news/business-24075745

But he got the haze issue wrong: he said would return “for weeks”. Hasn’t has it? And haze season is almost over. I’m glad he was wrong on this.

Here’s hoping he’s right on the Asian economies because if not

vivid memories of the 1997 crisis in Indonesia … watching in disbelief as a once stable currency slid, gently at first, from 2,400 rupiah to the US dollar in July, to 4,000 by early December, and then, dramatically to more than 16,000 in January.

The economy seized up, and within months Indonesia was in chaos.

… something else too.

The foreign fund managers, who had been cheerleaders for the investment boom before the crisis, privately admitting that the corporate data they were given by Indonesian companies was suspect.

But they continued buying into the country’s broader economic growth story, despite nagging fears about corruption and the persistent current account deficit.

Continue reading the main story

“Start Quote

Today the Thai economy is very different. Because we learned things like risk management, corporate governance, the ability to be flexible”

Jada Wattanasiritham SCB

I remember the World Bank and other respected international experts telling us, after Thailand’s economic collapse in July 1997, that Indonesia was different, its fundamentals were sound. It would not be infected by the disease, they said.

For anyone who experienced those bewildering months, and especially those who were victims of the crisis, they left a lingering mistrust of official reassurances, and an anxiety that they could be caught out again.

She seems to have forgotten:

— Fresh from leveraging up to buy a stake in insurer Ping An (he borrowed US$5.5bn), Dhanin Chearavanont is borrowing US$6 billion to finance a takeover of Siam Makro. Combining the Thai cash-and-carry group with his 7-Eleven convenience store chain makes sense. He co-founded Siam Makro with Dutch group SHV in the late 1980s, but was forced to sell out in 1998 when the Asian crisis left his empire overextended (soon to be repeated?). Sentimentality aside, the combined business should also be in a stronger position to expand into neighbouring Southeast Asian countries such as Laos and Myanmar.

The reunion is expensive. The offer price of 787 baht per share is 75% above where Siam Makro was trading at the beginning of January, and values the business at 53 times last year’s earnings. The advantage is that both Siam Makro and CP All, Mr Dhanin’s partially listed Thai retail company, currently have no debt.

— And in January another Thai tycoon, Charoen Sirivadhanabhakdi, won the battle for control of Fraser and Neave with a debt-heavy $11.2 billion offer based largely on breaking up the Singaporean conglomerate.

1997/1998 again? Both had problems then, esp the former.

Related post: https://atans1.wordpress.com/2013/08/22/why-regional-mkts-are-tanking-why-its-a-risky-moment/