'We Are Victims,' Mahathir Says as Free Fall Continues : ASEAN Chiefs See No Solution 
International Herald Tribune
December 17, 1997
Thomas Fuller

Asian leaders wrapping up a meeting here that was meant to restore confidence in their economies failed again Tuesday to stop the free fall of the region's currencies, four of which hit record lows.

A normally feisty and combative Malaysian prime minister, Mahathir bin Mohamad, reflecting the inability of Southeast Asian leaders to solve the crisis after three days of talks here, said: "We are not in a position to do anything. We are just the victims."

He added, "When you are up against forces that you can't fight against, there is little you can do."

South Korea, however, showed signs of recovery Tuesday as the won surged 14 percent after the government let the currency float.

Southeast Asian nations hoping to see Japan take a more active role in helping solve the crisis were told instead that Tokyo needed to deal with its own problems. Prime Minister Ryutaro Hashimoto said in strong language that Japan could no longer steer Asia as it had in previous years.

"It's most important that Japan steady itself," Mr. Hashimoto said. "This is not just my view, but the view expressed by all the other leaders. We shall never at any cost allow Japan to be the source of worldwide recession."

On Monday, Mr. Mahathir and his counterparts in the region called on the West for assistance in resolving the turmoil, saying that a concerted worldwide effort to arrest the currency slide was urgent.

But the Thai baht, the Indonesian rupiah and the Philippine peso again hit record lows against the U.S. dollar on Tuesday, even after central bank intervention. Even the relatively stable Singapore dollar was hit, touching a six-year low. The Malaysian ringgit weakened to its lowest levels since the currency was floated in 1973.

South Korea took steps toward pleasing the International Monetary Fund and foreign investors Tuesday by floating the won and announcing a series of other financial reform plans required under its bailout plan.

In addition to lifting the beleaguered currency sharply against the dollar for a second day, the won's flotation prompted a further rise of almost 5 percent in South Korean stocks.

Government ministries also announced that they would raise a 25 percent cap on interest rates to 40 percent, cut the state budget, ease rules on mergers and acquisitions to make foreign takeovers easier and relax rules on share issuance.

The steps are part of the terms of the IMF's $60 billion loan-guarantee package for South Korea, and analysts said these should help persuade the IMF to release further installments of the package.

But the news apparently failed to impress foreign bankers, who reacted indifferently Tuesday to Seoul's plan to sell one of its two most troubled banks. Rumors of a possible sale had helped lift the Seoul stock exchange as investors hoped for an influx of foreign cash to lend support to the shaky financial sector.

Also Tuesday, Indonesia's troubled financial system was dealt a fresh blow when a leading international credit rating agency warned that loan defaults by Indonesian companies would soon rise sharply, putting banks under severe strain.

Standard & Poor's Corp. said that "nonperforming loans" — meaning credits that could not be repaid — would climb sharply in the first half of 1998 and amount to "at least" 16 percent of total Indonesian bank loans by the end of that year. This is double the estimated level of four months ago, when the rupiah started to fall rapidly against the dollar. (Page 13)

The three-day meeting in Kuala Lumpur grouped China, Japan, South Korea and the nine members of ASEAN: the Philippines, Singapore, Thailand, Malaysia, Burma, Indonesia, Brunei, Laos and Vietnam.

It had been touted as providing East Asian answers for East Asian problems — without representation from the European Union or the United States — but leaders came away from the meetings Tuesday with few concrete policy decisions.

Japan, which in January had toured the region declaring a new era of "broader and deeper" ties with Southeast Asia, on Tuesday offered little beyond training schemes for workers and a marginal reduction in the interest rate it charges to countries for soft loans.

The region's political superpower, China, reassured ASEAN officials that it would not devalue its currency. Regional leaders fear the possibility of a Chinese devaluation because it would erode the competitiveness of their exports compared with Chinese products.

Japan also told ASEAN it was not in a position to tell private banks to "roll over" short-term loans extended to debt-ridden Southeast Asian companies. Countries like Thailand fear that many debt-ridden companies will not be able to make payments on foreign currency loans coming due in the next few months. Japanese banks have lent a large share of these foreign-currency loans to companies in Southeast Asia.

In his concluding remarks Tuesday, Mr. Mahathir said the region's problems were more protracted than previously thought.

"There was a tendency before to dismiss the problem and say how strong the currencies of Southeast Asia are and the problem will disappear almost by magic," he said. "Now more people understand it is not going to disappear so easily."

He added: "In this world, there is no equality. Might is still right."

After months of daily attacks against the foreign press and currency speculators, Mr. Mahathir was subdued in his comments to reporters.

"I am told that it is my brashness which has caused all these problems," he said. "So I'm trying to be nice, especially to the press, but I'm not succeeding quite obviously."

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