the nation: Chuan buries the hatch

[suriya@xxxxxxxxxxxx]

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