News Analysis: Southeast Asia risking with crisis

by Chinese media writer Ling Shuo

BANGKOK, July 2 (Chinese media) -- While recent instability in Southeast Asian stock markets has been attributed to rising oil prices and declines on U.S. economy, some analysts are pointing to more fundamental problems that could see a repeat of the Asian f

However, the region successfully managed to escape the edge of crisis during the first half of 2008, although risky factors are remain and posing danger to the future.

The soaring price of oil this year has held back Southeast Asia' s high-speed economy growth trend of last year. Especially, while Vietnam, the most potential developing power of the region, suffered a sudden economic slip earlier this year, other countries around had to take macro-regulation actions by various economic policies since the whole region shares an economy chain.

However, the prices of energy and foods which strike new records time and again since the beginning of 2008 still bring inflation to the ASEAN members, with a whole-year estimation of 5 percent of Malaysia, 6 percent of Singapore, 10 percent of Thailand, 11.2 percent of Indonesia, and more than 20 percent in Vietnam.

In the context of globalization, foreign investment and export also saw difficulties in these nations due to the unresponsive economy of the United States. Some countries which have conventional close trade relations with the United States and take foreign investment and export as their main driving forces for economic boom, such as Thailand and Singapore, suffered a lot from the subprime mortgage crisis. Following the weak trade, some currencies glided down, such as the Thai Baht and Philippine Peso.

While on the inner side of the region, Vietnam's sudden and spectacular economic meltdown -- witnessed in a 26.8 percent inflation rate in June, a spiraling current account deficit, the world's worst-performing stock market so far this year, and most recently rumors that the government has requested an International Monetary Fund bailout package -- is hard hitting the region's confidence, although the authorities in Hanoi said no such a financial crisis happened so far as rumors said.

Obviously, the slump of Vietnam's stock, property and currency markets caused tension among investors across Asia, who still have a fresh memory of the 1997-98 financial crisis. Though Hanoi moved quickly and "granted" its foreign exchange center a three-day holiday, it hasn't calmed market fears which actually are spreading to neighbors.

On July 2, 1997, the depreciation of Thai baht triggered a regional financial crisis that swept most of Southeast Asian markets and caused serious economic damage to the countries in this area. From then on, Southeast Asia's financial market has been very sensitive, worrying if the crisis may recur.

Therefore, some neighboring governments were forced to raise rates and appreciate their currencies to adjust the macroeconomic foundation. Meanwhile, they encouraged foreign investors, explaining the stability of market liquidity and expatiating the economy immunity. Apparently, they are afraid of a rapid withdrawal of foreign capital.

By and large, during the fist six months of 2008, through various policy adjustment, Southeast Asia managed to live amid an atmosphere filled with negative economic factors, but it is still far from to say "have avoided a crisis". Thailand's leading economy think tank the Kasikorn Research Center said in a recent report that risks still remain in the deep economic structure of Southeast Asian countries and they could be triggered off if more misfortune happens during the latter half of the year.

The report said if Vietnam could not control its slipping economy in the near future, foreign investment and capital that poured into Vietnam during the past years could be withdrawn by a large scale and at a rapid speed. It will effect foreign investment of neighboring countries since the whole confidence of foreigners to the regional market is getting lower and lower.

As a result, various governments in the region dropped its forecast growth for 2008. Thailand and Malaysia changed its forecast from 6 percent to 5 percent, the Philippines changed from6.3 percent to 5.3 percent, Indonesia from 6.4 percent to 6 percent while Singapore from 4.5 percent to 4 percent.

All indications, now, are that the Southeast Asian economies, burdened with debt and under constant pressure for corporate and financial restructuring, amid stock market and currency turmoil, are risking with financial problems, both from inner and outer. How to draft a series of cautious, active and flexible policies is the most effective way to leave the edge of a potential crisis.