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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Alarm bells

In assessing Southeast Asia, investors should look at specifics


IN RECENT YEARS, THAILAND'S economic woes have come to symbolize excesses in the property and financial sectors. But now fears of a repeat scenario have spread elsewhere. Apprehensive investors and fund managers on the lookout for "the next Thailand" think they have found them -- in its Southeast Asian neighbors. A report by U.S. credit-rating agency Moody's sounded alarm bells about the Philippines. Though its economy has grown 5% to 6% annually over the past two years, loans soared by 42%. Exposure to the troubled property sector is thought to be closer to 20% than the official 9%. Filipinos, Moody's concluded, risk paying the same heavy price for excessive credit growth that the Thais did after their property bubble burst around 1994.

The warning has been echoed by financial houses such as Goldman Sachs and UBS Securities. They see similar patterns emerging in Indonesia and Malaysia, which also went on property and consumer-lending sprees. Indeed, jitters about a Thai-style property bubble have hit stock markets around the region. The Manila bourse is down 14% since the beginning of the year. The reaction was especially sharp last month, sparked by rumors about financial troubles at Megaworld Properties. Other real-estate counters suffered from the spreading gloom over the property sector.

Investors are right to be cautious. Even so, as is often the case with bank runs, fear itself may give the nightmare some substance. President Fidel Ramos was obliged to deny publicly that his country was on the verge of a Thai-style crisis. He is right. Though increased property lending is a cause for concern, Manila is some way from the strains that Bangkok faced -- an exports slowdown and high balance-of-payments deficit, coupled with a four-year property glut to which many finance firms had 25% to 30% exposure. Whereas the Thais came off a decade-long boom, the Philippines' economy has picked up only in recent years. Its loans-to-GDP ratio last year stood at 70%, against Thailand's 102%.

Central bankers have been vigilant. As early as 1995, Bank Indonesia began requiring detailed reports from lending institutions so it could monitor real-estate loans more closely. Malaysia's Bank Negara introduced rules to curb speculation, limiting property lending to 20% of a bank's total loans. Two weeks ago, the Philippines announced a similar cap. All are prudent steps by regulators. Yet the moves have helped spread the nervousness around, depressing stock-market sentiment in both Manila and Kuala Lumpur.

Unless such lending restrictions are fine-tuned to ensure that the needs of non-speculative borrowers are met, they may precipitate the very crises they were meant to prevent. Drying up credit lines would hit developers with perfectly sound projects, while hurting genuine home-buyers and investors. Related businesses would also suffer. Indeed, one Malaysian economist even warned that unless these issues are ironed out, Bank Negara risked provoking a "mini-crash." It probably will not come to that. Still, in their efforts to head off problems, central banks and investors alike must address the specifics of each situation. Little is served by blanket responses to quite different challenges.


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