People look at the exchange rate at a moneychanger displaying a poster of US dollar, Chinese yuan and Malaysia ringgit in Singapore. The ringgit hit a fresh pre-peg 17-year low yesterday as sustained worries about China’s economy dented global risk appetite.

AFP/Beijing


The world market turmoil bears ominous similarities to the contagion that laid Asian economies to waste beginning in 1997: pressure on regional currencies, a worsening trade outlook and slowing growth.
But despite the daily beatings suffered by stock markets and currencies in Asia, painful lessons learned 18 years ago have left its economies far more able to withstand severe shocks, economists said.
There will be pain, however, particularly if global economic engine China slips into a deep and extended slowdown – curbing its demand for emerging-market commodities.
But one key difference today – the lack of currency pegs – should allow Asian economies to bend, but not break.
Before 1997 the governments of countries like Thailand, Malaysia, Indonesia and South Korea fixed their currencies to the US dollar.
This helped funnel speculative foreign “hot money” into their economies, fuelling stock and property bubbles while masking economic imbalances that were building up.
But when growth slowed and sentiment turned against the former investment darlings, their currencies came under fierce pressure, forcing governments to spend billions in precious dollar reserves to support their currencies.
Eventually, pegs had to be abandoned and economies were shattered.
“Back then, the whole house of cards came down. But today, with no pegs, the exchange rates are able to take some of the local heat, like a safety valve,” said Song Seng Wun, an economist with CIMB Private Banking.
“That’s the most important difference today.”
The late-1990s crisis also exposed a range of lapses in regulatory oversight, particularly in banking and lending. Most have been addressed. “All of that really strengthened the ability to withstand shocks. It’s about not repeating the same mistakes,” said Rajiv Biswas, Asia-Pacific chief economist for IHS.
“But one of the big issues right now is whether Asia can withstand the shock of a significant and protracted crisis in China.”
Economies throughout Asia and the rest of the developing world have become dependent on China’s demand for their exports of minerals, timber, energy resources and other commodities.
But Chinese growth is slowing, fuelling a sell-off in emerging markets as global investors seek “safer” investments such as US assets.
“Brazil is particularly vulnerable since it is an important exporter of commodities such as iron ore and soyabean to China, and... since its economy is already in recession,” said Biswas.
Others such as Chile, Russia, South Africa and Malaysia are already seeing export slowdowns or are expected to do so soon, analysts say.
China’s stellar annual growth rates of up to 10% propelled it to the rank of world’s second-largest economy. But growth has slowed this year to 7%, and Beijing’s recent move to devalue the yuan – placing further pressure on other currencies – has raised suspicions its economy is worse-off than thought.  
“I wouldn’t expect something like the financial crisis of 1997, but if China has a hard landing and growth is weak for years, that could cause problems for Asia,” Biswas added.
Most Asian currencies have fallen by significant amounts against the dollar this year, led by the Malaysian ringgit’s 34% tumble in 12 months.
But the region’s economic fundamentals remain far stronger than 18 years ago, and at a certain point weaker currencies help exports, said Song of CIMB.
“Things are slowing but not at a rate that could see these economies go into recession, so I’m not that alarmed,” he said.
Neither is Malaysian private stock trader Lok Eng Wah, who has been here before, having suffered heavy losses in the 1997-98 carnage. “At the moment it doesn’t seem to be as bad,” said Lok, 60. But he admits he has moved to the market’s sidelines for now.
“I am looking for upward momentum to come, but right now, all the momentum is downwards.”