Asia’s comeback

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That kindled speculative pressures that also forced currencies in Indonesia, Malaysia, the Philippines and South Korea to fall, driving more companies out of business, including one of South Korea’s largest conglomerates, the Daewoo Group.

The turmoil rippled around the world, affecting markets as far away as Brazil and Russia.

In ensuing months, the IMF orchestrated emergency loans of $17 billion for Thailand, $50 billion for Indonesia and $58 billion for South Korea — and imposed austerity measures such as raising interest rates and cutting public spending that many believe exacerbated the crisis.

Since then, Asian nations have taken steps to protect themselves by bulking up their foreign currency reserves and brokering regional agreements to supply emergency funds through bilateral currency swaps.

South Korea’s effective use of the IMF funds to repair bank balance sheets and moves to improve corporate transparency set the stage for a rapid recovery. After contracting 7 percent in 1998, the economy surged 9.5 percent in 1999.

Many of the major conglomerates survived, but not without changes. The Samsung Group streamlined its business structure, shedding its automobile unit and reforming its financial structure by reducing debt. The Daewoo Group, however, collapsed spectacularly under mountains of debt.

South Korea also responded by opening its economy wider to foreign investors, bringing changes virtually unimaginable before the crisis.

For example, U.S. private equity fund Newbridge Capital in late 1999 purchased a controlling stake in Korea First Bank, becoming the first foreign investor to acquire a South Korean financial institution.

But the outlook for Indonesia — hardest hit by the crisis — is mixed.

The turmoil accompanying Suharto’s ouster in 1998 made it difficult for authorities to tackle structural problems in the economy, including bad lending practices and corruption.

Today, greater investment in factories, roads and ports is needed to achieve economic growth of more than 7 percent — the minimum level needed, specialists say, to create enough jobs to put a dent in unemployment, now around 10 percent.

“The country is still dealing with the long-term fallout from the crisis,” says Peter McCawley, a specialist on the Indonesian economy at the Australian National University.

Progress on improving the investment climate has been patchy, and many businesses prefer to locate factories elsewhere in Southeast Asia, where wages are lower, setting up is easier and corruption is less of a problem.

Exploration for Indonesia’s vast copper, gold and zinc deposits remains dormant despite record metal prices. Companies say it is too risky investing millions when there is no certainty they will be able to mine the minerals later. A mining law aimed at ensuring legal certainty for investors is still being debated in parliament.

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