10th Anniversary of the Asian Financial Crisis
Asia Rebounds, Taiwan Slumps
Ten years ago, Asia was rocked by a severe financial crisis. Now the region prospers more than ever before. Yet during the same period, Taiwan's prospects have dimmed. How have other Asian countries been able to turn their fortunes around?
Asia Rebounds, Taiwan SlumpsBy Maxine S. C. Yang
From CommonWealth Magazine (vol. 373 )
"The Asian Financial Crisis may have hit ten years ago, but to one manager in a Taiwanese brokerage firm, it remains a vivid memory.
“At that time I had just started my job analyzing Asian stocks. Within three months, one after another fell victim to the financial crisis. Customers took a beating, and there were people calling every day giving us a piece of their mind,” the manager recalls.
The financial maelstrom hit in July 1997, causing the stock markets and currencies of Thailand, South Korea, Indonesia, the Philippines and Malaysia to all lose between 30 and 50 percent of their value within six months. Even Singapore, Hong Kong and Japan took a drubbing, with each country’s stock market values and currencies falling by a combined 30 percent or more.
South Korean citizens even tried to help save their country by donating their gold to be converted into U.S. dollars to pay off the country’s foreign debt.
“It was the first time I really felt that the failure of the financial system could destroy a country,” recalls Sean Chen, director-general of Taiwan’s Bureau of Monetary Affairs when the regional financial meltdown occurred.
Unlike the rest of Asia, Taiwan was generally unscathed by the financial tempest. Thomas Yeh, who currently serves as the vice chairman of the Council for Economic Development and Planning, was attending an overseas conference at the time. He remembers having the U.S. Deputy Treasury Secretary Lawrence Summers shake his hand and praise Taiwan, telling him, “You guys in Taiwan are really amazing.”
Asia’s financial sector is undergoing a period of consolidation. Pictured is the lobby of United Overseas Limited Bank, one of the only three homegrown banks remaining in Singapore.
Changing Their Stripes
A decade later, it is hard to fathom how much the tables have turned. The countries hit hardest have risen from the dead to regain their dynamism.
The main stock indices in East and Southeast Asia, with the exception of Japan and Taiwan, have all reached levels exceeding pre-crisis highs, with indices in Indonesia and South Korea doubling their previous bests, according to CommonWealth Magazine calculations.
Some currencies have also recovered their value. Compared to levels seen in June 1997, just before the crisis hit, the Thai Baht is now one-third more valuable, while the Malaysian ringgit and Singaporean dollar have also appreciated slightly.
Overall then, the region’s currencies and stock markets have won the battle against the financial meltdown, enabling Indonesians and South Koreans to double their wealth and Singapore and Thailand to see 60-percent growth in the value of their assets compared to pre-crisis levels. A World Bank report described these gains as the Asian countries’ great revival.
In contrast, the value of Taiwanese assets has declined. The so-called financial misery index — the combined change in value of a country’s leading stock index and currency over time — shows Taiwan with the biggest loss in value and only one of two countries (the other being Japan) where the index is negative compared to June 1997 levels.
Many economists attribute the revival of Southeast Asian countries to each country’s commitment to promoting continued reform.
Guy de Jonquieres, a prominent commentator and writer on economic affairs, has argued that outside investment injected management and operating know-how along with international experience and advanced technology into those ailing countries.
Standard Chartered Bank Executive Director Kai Nargolwala, who oversees corporate governance for the bank in Asia, agrees, noting that the crisis made each country realize that finance is a professional discipline and that governments are not necessarily able to control or run financial sectors. They understood that they should open their markets to foreign banks to help the local industry, he concludes.
The Asian Wall Street Journal suggests that the financial meltdown also forced Asian governments to demand a more transparent stock market culture and leave behind pre-crisis practices, such as cross-holdings of companies, support of share prices and insider trading, that buried individual investors.
Moreover, the financial sector itself, which was dealt a severe blow, became committed to restructuring and eliminating structurally unsound banks.
Today, Singapore has only three homegrown banks left, while Malaysia has only nine and would like to reduce that number further to between four and six. South Korea has four banks that now rank in the world’s top 100.
As Asian financial sectors have overcame obstacles to regain their vitality, the wealth of Asians has grown, leading regional financial institutions to scramble to deliver wealth management services. Chen Shu-shan, the head of Citi’s personal banking services in Singapore, Brunei and Malaysia, excitedly reveals that her department has grown annually by double digits.
In contrast to the retreat of a decade ago, financial institutions in every country are all looking to expand the battlefield.
Foremost Battlefield for Finance
Many foreign banks view Asia and Southeast Asia as a first-class business arena. Citigroup plans to lay off employees around the globe to cut costs, but announced that it would make acquisitions and hire 10,000 people in Asia. UBS is also launching an all-out attack on the Asian market, stationing nearly 1,000 logistics personnel in Southeast Asia’s Singapore, rather than in India.
The Asian revival has also been the main engine of Standard Chartered Bank’s growth in recent years. Over the past five years, Stanchart’s EPS (earnings per share) have grown by more than 20 percent a year, largely due to the addition of nearly 1,000 branches in Asia, the Middle East and Africa.
Even Taiwan’s banks have been aggressively pursuing financial opportunities around Asia.
Their interest is driven in part to serve Taiwanese businesses that have expanded overseas and need banking facilities. Chinatrust’s most profitable overseas investment, for example, was its Greater China platform set up through Hong Kong. Chinatrust has since expanded its regional operations to Vietnam and even to the west coast of the United States, places where Taiwanese businessmen are most active.
Taiwan’s financial industry even seeks to mimic its manufacturing sector, which has moved whole plants to Southeast Asian sites and used local residents’ money to make money. Chinatrust, for example, is cooperating with a local bank in Thailand to operate a credit-card business.
“In Taiwan, it’s hard to make money. All of our experience and technology go to waste,” sighs Jason Wang, chief strategy officer for Chinatrust, which is Taiwan’s biggest credit-card issuer.
In Vietnam, aside from Chinfon Bank, which entered the market early and has now gained a firm foothold there, other important banks are all rushing to establish a beachhead in the rapidly growing Southeast Asian country.
In the eyes of foreign and Taiwanese financial institutions, Asia seems to have a boundless future full of optimism, but there are those who remain cautious.
The Warning Siren Sounds
In 1987, the New York Stock Exchange had a meltdown. In 1997, the Asian Financial Crisis hit. Is another upheaval just around the corner? According to Mohamed Ariff, executive director of the Malaysian Institute of Economic Research, financial crises tend to run in cycles and eventually return. Only the factors behind each crisis are different.
Ariff contends that the next crisis could originate in the United States. The U.S. has relied excessively on outside investment and a trade deficit to bolster its economy, causing the value of the dollar to decline steadily. If U.S. consumption were to collapse, China, which ships large quantities of goods to America, would feel the impact. As a consequence, the member states of ASEAN (Association of Southeast Asian Nations), which rely on exports to China, would have a hard time avoiding the blow. While trade among ASEAN countries is growing steadily, most of the goods exchanged are eventually shipped to China or the United States.
“Made in China” is, in fact, “Made in Asia,” says Dr. Yuwa Hedrick-Wong, an economic adviser to MasterCard International for the Asia-Pacific region.
Ariff has urged countries in the region to set up a cooperative mechanism as a precaution against another disaster.
“Asia can’t wait for a crisis to happen,” he says.
Translated from the Chinese by Luke Sabatier
Chinese Version: 亞洲再起 台灣殞落