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The Honolulu Advertiser
Posted on: Sunday, August 26, 2001

Electronics slump delivers setback

Associated Press

SINGAPORE — Three years after a devastating financial crisis, Southeast Asia's once high-flying economies are back in trouble. But the current slowdown is different in nature, and one that few expect to be as bad.

A computer shop employee rearranges monitors in Singapore. The city-state may be the nation hardest hit by waning worldwide demand for high-technology exports.

Associated Press

A spate of gloomy economic data has some fearing a repeat performance of 1997, when massive capital flows out of emerging markets battered Asian currencies and pushed the region into recession.

Singapore is in recession now, and other economies in the region may follow suit. This time around, however, the problem is slack demand for high-tech exports.

"It's anything but a crisis deja vu," said P.K. Basu, a Singapore-based economist with Credit Suisse First Boston.

Structurally, Southeast Asia is a very different place than it was in the late 1990s. Debt levels have declined. Currencies are no longer easy targets for speculative attacks. Most Asian economies have abandoned fixed exchange rates, making currencies more flexible.

Adrian Foster, an economist with Nomura Securities, says Southeast Asia's problems now are mostly cyclical, rather than systemic, because the region is so heavily reliant on exporting disk drives and computer chips to the United States.

The countries currently suffering the most — Singapore, Malaysia and Taiwan — are the ones most dependent on computer chips and other high-tech exports. Those same countries suffered the least during the 1997-98 Asian crisis.

Electronics make up roughly 70 percent of Taiwan's total exports, while they account for about 60 percent for Malaysia and Singapore, according to their governments.

The heavy demand for high-tech exports in 1999 and 2000 had a negative impact on Asia because it allowed many countries to delay cleaning up their banking systems and corporate sectors. After all, why bother with painful reforms in the middle of a boom?

But some reforms have taken place.

"We don't seem to be as fragile now as we were going into '97," said David Cohen, an analyst with Standard & Poor's MMS International. "When problems came, everyone ran. Nobody's quite so wide-eyed anymore."

The thought of foreign investors yanking their money out of Southeast Asia is not as terrifying simply because the region has failed to attract much foreign investment since the crisis. China now lures more money than all 10 countries in the Association of Southeast Asian Nations combined.

While China and fellow giant India have bucked the trend of global gloom, Chinese and Indian appetites for electronics have not been able to offset the slump in U.S. consumer demand.

With the U.S. economy expected to grow at an anemic rate over the next year or so, it is urgent for Southeast Asian economies to restructure their economies, analysts say.

Wong Keng Siong, a regional economist with Dai-ichi Kangyo bank, says the slowdowns will reinvigorate the reform process, but that Asia has already come a long way.

"Most of the weak banks are already gone," Wong said. "What you have left with is a crop of banks that are generally in better shape."

Although Thailand and Indonesia need to make major reforms in their banking systems, most of the electronics-dependent countries have already done so, he said.

Tiny, trade-dependent Singapore, which weathered the last crisis better than most, may end up being the hardest hit by the current electronics slump.

Exports of electronic goods fell 21.2 percent to $2.6 billion in June, while the sale of computer chips fell 31 percent to $650 million.

The data were worse than expected.

Singapore, Malaysia and Taiwan must work to diversify their economies and develop stronger services industries, economists say.

"Economies that have a bigger share of services tend to exhibit less-volatile growth," Wong said. "Manufacturing tends to be more susceptible to boom and bust."