IN MY OPINION...
February 2, 1998.

On the Southeast Asian Crisis

On Asian Values

Investors should not forget that the positive values that provided the foundation for Southeast Asia's "economic miracle" have remained intact: hard work, thrift, drive for education and technology, self-sacrifice for society and for the future.
Now that the social contract (stability and economic growth in exchange for authoritarianism and reduced individual freedom) between these governments and their populations has been broken, the more "negative" values of crony capitalism over free competition and profits over human rights are under pressure.
The combination of these two factors should result in a more competitive, liberal, and richer Southeast Asia!

On China, Japan and the U.S.

Japan and the U.S. have two roles: as a source of funds and as a market for Southeast Asian goods.
With no end in sight for Japan's recession that has now lasted for the past eight (8) years, the U.S. has to assume a greater role.
The U.S. though may be unable to provide the leadership necessary to quickly resolve the Southeast Asian crisis, what with Clinton's troubles and a Congress hostile to additional funding for Southeast Asia (at least through the IMF).
U.S., Japanese, and European financial institutions, who have the bulk of loan exposures to the region, will hopefully be able to act in their own best interest within the regulatory framework of their respective countries by rolling-over maturing obligations AND by providing the financing necessary to continue trade.
China IS the trade competitor of the rest of the Southeast Asian economies. If China violently devalues its own currency to maintain the competitive standing of its exports, another equally violent round of devaluation may ensue for the rest of Southeast Asian currencies.
One root of the present crisis probably lies with the 45% devaluation of the yuan in 1994.

On Philippine Prospects

Interest rates will probably remain high as the governmental deficit balloons with the slowing down of the economy, and as banks keep their spreads high to make up for deteriorating loan quality and for reduced loan growth.
The imbalance of imports over exports as well as the reduction in remittances from overseas workers will continue to put pressure to the exchange rate.
However the prevailing consensus is that the peso is undervalued at Php 40, with the true value estimated at PhP 30-35.
Thus a short term improvement of the exchange rate is expected, followed by an eventual depreciation (hopefully on a gradual, steady basis).
The present economic crisis, as well as the trend towards regionalization and globalization would drive consolidation within industries, more family-controlled companies would welcome outside investors, and more private companies would go public to raise funds.
The last two points define terrific opportunities for investors, especially foreign ones.
But the results of the presidential elections in May, 1998, would define the economic future of the Philippines. The worst election result would be for an active incompetent (in my book, "incompetence" includes dishonesty and corruption) to win.