A Web Of Economic Woes Asian Nations Struggle Individually To Cope With Shifting Fortunes

In South Korea, citizens are tearfully helping their country by selling their precious “baby rings” - the traditional gift for 1-year-old children - and other gold items. The government will resell them for something that has become even more valuable in recent months: U.S. dollars.

In Thailand, the government has begun paving roads with cement instead of asphalt to avoid buying ingredients such as petroleum, which it must pay for in dollars and other hard currencies. In Indonesia, on the other hand, the government has just announced a spending spree that many analysts say it cannot afford.

As the nations of Southeast Asia try to cope with a “financial flu” that has battered their economies and left little hard currency to pay foreign debts, analysts are talking less about a single Asian crisis. Instead, they see a series of crises, with each nation trying its own methods to solve its problems.

The responses of each country are likely to meet different degrees of success.

Indonesia, for example, continued in economic free-fall Thursday as its currency lost a stunning 25 percent of its value in only a few hours. That prompted panic buying at stores, as people tried to grab food and other products before prices went up. The stock market collapsed.

The crisis is particularly acute in Indonesia because of fears the nation’s leader of 32 years, 76-year-old President Suharto, is too invested in the so-called crony capitalism that has made his family wealthy but has blocked the closing of banks and other businesses that are insolvent and drain money from the economy. Investors also fear political instability, as there is no clear successor to Suharto, who is in fragile health.

Moreover, Suharto this week proposed a free-spending budget that appears to take none of the austerity measures investors and lenders believe are needed to fix the economy. If those steps are not taken, the International Monetary Fund could withhold the next set of loans it has promised as part of a $23 billion bailout package.

In contrast, Thailand and South Korea elected new leaders in the past few weeks, raising hopes those governments will close troubled businesses and take other measures to stop the economic bleeding. Those steps would likely raise prices, close factories, and put people out of work. But in time, they could also win back foreign capital, spurring the economy and raising the currency reserves the nations need to pay their overseas debts.

“The situation in Korea has stabilized, whereas Indonesia is spinning out of control,” said David D. Hale, chief economist at Zurich Kemper Investments in Chicago. “The situation in Thailand is somewhere in between.”

Some analysts see the greatest promise in South Korea, where president-elect Kim Dae-jung has said he will carry out the terms of the IMF agreement, which gives the nation nearly $60 billion in loans but will likely hurt workers and consumers. As a candidate and opposition leader, Kim had criticized the IMF loan package, calling its signing a “National Humiliation Day.”

South Korea also has allowed some large companies bad loans, the nation may take responsibility for some of the debt now held by private companies. That might help the banks but scare investors by shifting liabilities to the government, said Clifford Griep, executive managing director of Standard & Poor’s Ratings Group.

South Korea is still strapped for hard currency to repay foreign loans, a problem that has caused S&P to rate its national debt lower even than that of Thailand and Indonesia. All three are now junk grade, meaning many institutional investors are barred by their bylaws from buying bonds from those nations. But South Korea “is under the most stress” and has little “financial flexibility” because of its low reserves, Griep said.

In Thailand, the government has started to clean up a troubled banking sector, cutting the number of banks and financial institutions from 91 last summer to about 56, said Douglas Wilde, an investment strategist with Merrill Lynch.

South Korea and most of Southeast Asia have been swamped by similar forces. The problems started in July, as Thailand decided to end the long-held link between its own currency and the dollar. That not only allowed the Thai currency - the baht - to fall, but triggered declines in the currencies of Indonesia, Malaysia, the Philippines, and other nations.

The devaluations created a problem. Southeast Asian businesses had borrowed billions of dollars in foreign-denominated debt, often with government support and encouragement. The money was used for aggressive expansion that turned the region’s economies red-hot. But when local currencies fell, it became harder to pay debts coming due in dollars, yen, and deutsche marks.

As loans could not be repaid, banks in South Korea, Thailand, and elsewhere weakened, sparking worries of defaults that would ripple through Japan, Europe, and the United States.

Stock markets plummeted as well, even in places such as Hong Kong, which did not have the debt problems of Indonesia and South Korea.

But each nation had taken on debt for a different reason. In South Korea, the government wanted to buy its way into a leadership position in industries such as chemicals and automobiles, and it encouraged the nation’s giant conglomerates to borrow money to build factories. Because of overbuilding, some of those factories are now under-used or idle.

In Thailand, the big loans went to real estate developers. “It’s like New Hampshire five years ago: a big real estate glut, with bankers going mad putting up office buildings,” said Hale of Zurich Kemper Investments.

Malaysia’s currency and stock market have been hurt badly in the past year, but the nation does not have the same banking and foreign debt problems as its neighbors, said Griep of Standard & Poor’s.

Malaysia’s prime minister, Mahathir bin Mohamad, has given foreign investors the toughest tongue-lashing, calling them “anarchists” and “self-serving rogues.” He has said speculative trading can cripple a nation and force it to seek help from the IMF and other agencies, thus depriving it of sovereignty.