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the nation: Chuan buries the hatch
- Subject: the nation: Chuan buries the hatch
- From: suriya@xxxxxxxxxxxx
- Date: Thu, 12 Mar 1998 17:24:00
Business
Chuan buries the hatchet
in talks with Soros
Billionaire financier George Soros, who last
September labelled Malaysian Prime
Minister Mahathir Mohamad ''a menace to
his own country'', yesterday gave Thai
Prime Minister Chuan Leekpai a more
gracious welcome at the Council on
Foreign Relations in New York.
The listeners then heard a 45-minute
speech from Chuan admitting to Thailand's
past mistakes and telling of his reform
efforts designed to rebuild the country from
the rubble.
Before the speech Chuan talked to Soros
for about 15 minutes during which they
discussed the financial crisis in Asia.
Soros's view was that Thailand should
undertake fundamental reform of the
financial institutions and the financial
system as a whole, while moving in timely
way to ensure that Thai exporters have
access to liquidity and are competitive
enough in the global marketplace.
The Chuan-Soros encounter, in the eyes of
the New York elite, might be symbolic of a
reborn Thailand. But for a quarter of the
Thai people the resentment of Soros and
other currency speculators is still deep.
They are viewed as having been a menace
to Thailand by laying siege to the baht in
late 1996 and the first half of 1997, before
finally breaking the back of the Bank of
Thailand.
In hindsight, the baht was destined for
collapse anyway due to a combination of
the unsustainable current account deficit
and the fixed exchange rate system.
Supervision of the financial institutions was
also dismal, not to mention the murky
regulatory framework and the cumbersome
bureaucracies that could not respond to the
systemic crises.
But Soros and other speculators helped
accelerate the currency's downfall and
profited handsomely from their short-baht
positions. The money war, waged from the
currency dealing rooms in the offshore
markets, caught Thailand completely off
guard and taught a costly lesson. The
spectre of the money war will continue to
haunt Southeast Asia, so ill-equipped to
cope with the globalisation of financial
markets.
Money managers from the West are being
so domineering in regional financial
markets that the good they do can be offset
by harmful effects. When they move money
in, a market or currency goes up. When
they move out -- in panic as seen in the
most recent case in Asia -- they cause
widespread disruption and social upheaval.
And they do so by simply changing
investment weightings in their gigantic
portfolios.
Singapore has been caught on the tail-end
of the regional contagion effect, even
though its economic fundamentals remain
sound. Its currency has lost 20 per cent of
its value against the US dollar since the
''Asian flu'' broke out last July.
The fact that Chuan decided to meet a
former foe demonstrated Thailand's
willingness to swallow its pride. He would
do anything to put Thailand back on a
stable path of economic growth of five to six
per cent.
This year's economic growth rate will fall
into negative territory of minus three per
cent. Nobody wants to imagine what will
happen if a positive growth rate is not
achieved next year.
Chuan's mission in his US trip is to
appease international investors and send a
clear message that Thailand is willing to
play by capitalist rules. For it is a painful
fact that the return of foreign capital is a
precondition for Thailand's economic
turnaround. Unfortunately, most of the
foreign capital lies on the other side of the
globe.
Thailand's chances of survival depend on
the mercy of decision makers and investors
in the United States, Europe and Japan.
There is no better place to send out this
message than the US, the epicentre of
global security and financial power.
It is because of this reason that Chuan will
be at full stretch in his bid to distinguish
Thailand from the rest of Asia. The key is
winning back confidence. He'd rather have
his picture taken with Soros than with
Mahathir or Indonesia's President Suharto
at this point.
The emerging banking crisis in Malaysia
has silenced Mahathir, who now lets Anwar
Ibrahim, the finance minister, do most of the
talking. The proud Mahathir has vowed that
Malaysia will not kow-tow to the
International Monetary Fund. Malaysia is
looking like another domino ready to fall
after Thailand, Indonesia and South Korea.
Indonesia is already in dire straits, and
Suharto has stubbornly defied the wheel of
capitalism. His re-election to another
five-year term and his threat to adopt a
currency board system has aroused fears
that Indonesia could be put in the
impossible position of being left to deal
with the crisis alone.
The crisis in Indonesia and more recently in
Malaysia might be of some benefit to
Thailand because investors will be able to
distinguish it from the rest. More
importantly, Thailand has made impressive
progress in its financial and economic
reform as prescribed by the IMF. All the
reform measures that have been
announced so far address the concern of
the financial markets, even though they
come with a high social cost. But it is a
price Thailand has to pay for its wrecked
economy.
Fortunately for Thailand, Chuan has been
broadly recognised as an ''honest''
politician. He is a leader that came to
power by popular election. Thailand's
democracy, despite some flaws and a
need for further reform, guarantees political
stability. And this is another key ingredient
that will prevent Thailand from really going
down the tubes.
BY THANONG KHANTHONG and
VATCHARA CHAROONSANTIKUL
The Nation