Asia’s Top Bankers Foresee Tougher Times

Wrapping up an annual summit, Southeast Asia’s central bankers took a break Sunday for golf and tennis on the tropical island of Bali. But all were aware that months, perhaps years, of economic hardship lie ahead.

Underlining those hardships, the Indonesian rupiah plunged 24% early today, after the International Monetary Fund threatened to withhold funds from the country if it forges ahead with plans to peg the currency to the dollar or another currency any time soon. The rupiah fell as low as 10,750, its weakest in two weeks.

In a final statement, the chiefs of 10 central banks acknowledged that growth will slow and inflation will accelerate in 1998 as Asian economies grapple to revive their crippled currencies.

Many of the speeches in the two-day meeting that ended Saturday were somber, often taking a confessional tone as the bankers commiserated with one another at a beach-side, five-star hotel.

“Most people, including myself, did not think the situation would deteriorate so dramatically,” said Bank of Korea’s governor, Lee Kyong-shik.

“It developed so rapidly,” he said. “By the time we realized the possibility of a crisis, it was already too late and funds rushed out within a few weeks.”

The crisis began last summer when Thailand’s currency, the baht, plunged after the government allowed it to float freely against other currencies. Other currencies in the region followed suit, plunging financial markets into turmoil and key companies into bankruptcy.

Casting about for ways to deal with the slump, central bankers from Indonesia, Malaysia, Singapore, Thailand and the Philippines said they will debate the idea of regional trade in local currencies to ease dependence on the dollar. A task force will meet at the end of this month to study that possibility.

Although it worried markets early today, the bankers apparently sidestepped the controversial topic of a proposed currency board in Indonesia that would secure the rupiah at a fixed exchange rate against the U.S. dollar.

Hit by violent protests over rising prices, Indonesia has the weakest currency in the region and its economic slowdown is expected to continue in 1999.

A currency board would strip Indonesia’s central bank of control over monetary policy and is said to be opposed by the International Monetary Fund, which is leading a $43 billion rescue package for the world’s fourth most populous nation.

Bank of Indonesia’s governor, Soedradjad Djiwandono, said he wasn’t involved in the plans for a currency board. The government is writing up laws to implement it, but has not said if and when it would take effect.

On a positive note, Taiwan’s central bank chief promised some relief for his counterparts, saying he will pump up to $1.2 billion through Taiwanese bank branches for loans to ailing firms in Southeast Asia.

“If they think this is not enough, we can do more,” Gov. Sheu Yuan-dong said in an interview with Dow Jones Newswires. Taiwan has emerged relatively unscathed from the crisis.

Overall, the bankers offered gloomy forecasts for their countries’ economies in 1998. Here are details from some of their speeches:

* Singapore: Commerce and the tourist trade will slow as fewer Asian travelers visit. Inflation in 1998 will be 2% to 2.5%, compared to 2% last year.

* Philippines: The economy will slow further but begin recovery toward year-end. Inflation will accelerate, but remain below 10%.

* South Korea: The country has received a $57-billion IMF-led bailout package. Stock prices have picked up since a debt restructuring deal with international creditors in January. Growth will slow to 1% or possibly none.

* Malaysia: Growth will slow to between 3% and 4%, down from 7.8% in 1997. Exports of manufactured goods will be high. However, 17,000 workers, mostly in the manufacturing sector, lost their jobs last year.

* Myanmar: Inflation reached almost 30% by December. A five-year economic plan predicts 6.4% growth this fiscal year, now considered too optimistic. Military-led government denied foreign aid enjoyed by other nations.

The next bankers’ summit, known as SEACEN, will be held in South Korea. SEACEN members are Indonesia, South Korea, Malaysia, Myanmar, Nepal, the Philippines, Singapore, Sri Lanka, Taiwan and Thailand. Observers from Cambodia, Fiji and Tonga attended this year.