ECONOMIC SCENE : Rising Asian Deficits Threaten Trade 
International Herald Tribune
March 23, 1996
Michael Richardson 

Surging current-account deficits in several Southeast Asian countries, caused largely by a rapid rise in imports, are prompting government and monetary authorities to rethink free-trade policies.

Economists estimate that spending by Indonesia, Malaysia and Thailand on imports of goods and services in 1996 is likely to exceed their export and other earnings by more than $30 billion

While taking some measures to tighten credit and slow growth to more sustainable levels, Indonesia and Malaysia are also applying import-substitution programs. Thailand is considering selective curbs on foreign investment.

Although foreign investment in the three countries is helping to finance their deficits, repatriation of profits and imports of equipment and goods for foreign investment projects are a major cause of the spiraling imbalances.

Like other Asian nations, Indonesia, Malaysia and Thailand have been liberalizing their economies in recent years to make them more efficient and competitive.

Officials said the recent steps in response to the growing deficits did not mean that market-opening was being put into reverse gear, but analysts said it was certainly a setback.

But a Western business executive whose company has established manufacturing operations in Southeast Asia said the moves "send the wrong signals to investors who were banking on the region becoming a genuine free-trade area" by early next century.

The Malaysian government, for instance, has directed all state entities and the private sector to make an audit of the local content of their projects and increase it wherever possible to cut the current-account deficit.

"Of course, this may result in some people complaining that we are imposing quotas on imports," said Prime Minister Mahathir bin Mohamad of Malaysia. "But if we don't impose quotas, we have a deficit, and they complain that we are not managing our economy properly."

Official figures due out soon are expected to show that Indonesia's deficit reached almost $8 billion in 1995, more than double the level in 1994, while Malaysia's nearly doubled to just over $7 billion

The Bank of Thailand announced recently that the country's current-account deficit last year was nearly $12 billion, up 65 percent on 1994.

The central bank proposed that the government take several steps, including restriction of foreign investment in manufacturing to large operations.

President Suharto of Indonesia earlier this month set up an official group to scrutinize imports for government and state-owned company projects, saying it should direct the procurement of goods and services to domestic suppliers as much as possible.

The government has also agreed to hefty protection for a national car project and a giant petrochemical complex, both of which are partly owned by companies controlled by sons of Mr. Suharto.

Japan has protested that the national car program runs counter to World Trade Organization rules and the spirit of the Bogor Declaration on free trade adopted by a meeting of leaders of the Asia Pacific Economic Cooperation forum, in Indonesia in 1994.

Japan currently has a share of over 90 percent of the Indonesian automobile market through joint venture assembly plants set up with local companies.

Tunky Ariwibowo, Indonesia's trade and industry minister, said that the government was determined to reduce the annual current-account deficit by expanding exports and bringing down the growth rate of imports in 1996 to 11 percent from 30 percent in 1995.

He said that imports would be slowed by a government strategy to develop Indonesian-based industries and services that could "substitute for imports."

Foreign business executives and bankers are critical of the moves toward greater self-sufficiency in Thailand, Indonesia and Malaysia, saying they will scare off overseas investment that is helping to build stronger exports.

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