How Asians Tighten Belts After Luxury
Layoffs in Thailand this week plunge many into penny-pinching. IMF reforms kick in.
Khun Kittisak knows the reality of Asia's economic crisis. Just two months ago, he was riding high. As vice president of one of Bangkok's leading finance companies, a fat executive salary bought him a $200,000 home and a flashy new BMW. In many ways, he was the epitome of Thailand's boom.
Nowadays, Mr. Kittisak is an example of how Asia's economic downturn is transforming ordinary people's lives. Shortly after the government announced the suspension of his company, Kittisak became one of some 14,000 Thai finance workers who have lost their jobs in recent months. The fate of Thailand's debt-laden finance companies is just one example of how corporate Asia is being forced to institute painful reforms in return for much-needed cash from the International Monetary Fund (IMF).
For Kittisak, the shock has been brutal. The former financial whiz has exchanged his BMW for a Mazda and he has sold his luxury home. Kittisak, who admits he didn't save a cent during the boom, now lives in a $120-a-month one-room apartment and sells T-shirts.
One irony of his hardship is that indirectly, it will bring cheer to Thailand's foreign creditors.
On Monday, Thailand's Finance Minister Tarrin Nimmanahaeminda sounded the final death knell for 56 finance companies whose activities were suspended since August. Just 35 of an original 91 finance companies will remain open for business in the capital, Bangkok.
Mr. Nimmanahaeminda's announcement fulfilled a pledge to the IMF, which asked Thailand to purge its finance sector before releasing another $3 billion into the economy. Within hours, Thailand's sagging stock market rallied by 3-1/2 percent. "It was a positive step in the right direction. It gives hope that the situation will get better," says Youssef El-Khouri, a financial analyst at Cathay Capital in Bangkok.
While foreigners applaud the finance minister's tough stand, thousands of Thais must now cope with an almost total reversal of their fortunes. In the short-term, analysts say here, another 5,000 finance workers are likely to lose their jobs. The grimmest forecasts suggest that more than 2 million Thais could be unemployed by the end of next year in this country of almost 60 million people. As the impact of the crisis ripples outward, bankruptcies will mount and cash-strapped companies will be forced to shed staff.
Humbled by devastating rounds of currency speculation and a dramatic slump in investor confidence, Asians have watched in bewilderment as their "miracle" economies evaporated. Many are left asking themselves what went wrong.
Much of the blame has been laid at the feet of Asia's rulers. Last November, popular protests drove Thailand's Prime Minister Chavalit Yongchaiyudh out of office. In South Korea, President Kim Young Sam acknowledged his government's shortcomings by firing his finance minister.
Encouraged by politicians who are eager to deflect criticism, a growing number of Asians are also looking accusingly at the West. "I think the US was behind the attack on Asian currencies," notes Khun Norraphon, a Thai politician from the ruling Democrat Party. "They wanted to slow us down because we were getting too large and too strong."
American insistence that Asian economies must go through painful reforms, bringing in more transparency and breaking cozy ties between the government and business, has helped reinforce perceptions that Washington has not done enough to help. "The US was too slow to help," says Mr. Norraphon in Bangkok. "They waited for everything to collapse. The US is using the IMF to control us. We're in their hands now. They can make us turn left or right."
Even more galling is the armada of Western corporations arriving in Asia to snatch up bargain-basement investment opportunities. As local currencies have tumbled against the dollar, foreign companies have begun picking through the rubble in search of the juiciest deals.
In Bangkok, for example, Citibank has announced its intention to take a controlling stake in the First Bangkok City Bank. "It's the foreign investors who are really benefiting from this situation. They're just waiting till prices reach rock bottom," explains financial analyst El-Khouri. The flow is not all one way though. While American investors will benefit from the depreciation of regional currencies against the dollar, Asian exporters can also expect to see their sales soar in the US.
But not everyone in Asia is complaining. Khun Chittimas Ketvoravit, managing director of a major construction company in Bangkok, sees the arrival of the IMF as an opportunity. "They are here to help, and we need their help," she explains. "We need strong medicine. We have been so undisciplined."
Some people are already showing they're up to the challenge. When property developer Sirivat Voravetvuthikun's condo-project turned into an expensive flop, he exchanged a gold-plated lifestyle for a small business selling sandwiches, taking all his staff with him. Another former real estate trader, Trisadee Asarat, has opened his own car wash service, working alongside former office mates who used to ride Bangkok's booming property market.
The optimists promise that if Asia carries out the IMF's reform programs and manages to rethink itself, it will emerge from this crisis stronger than before. To do that will require a learning curve that is likely to amount to a small revolution in the workings of Asia's economies. Thai importer Ladda George knows only too well how much has to change. "You can't expect to change things overnight. Corruption has become a habit," she says.
As the demands of the global market create de facto international norms for business practice, one thing is clear: The region will have little choice but to change its ways if it is to live up to the promise that the next century will be an Asian Pacific one.