The financial turmoil sometimes known in Thailand as the tom yum goong crisis erupted with the baht’s devaluation 20 years ago on Sunday. The trouble quickly spread across Southeast Asia with the signature intensity of the fiery soup for which it is nicknamed.
Markets turned as sour as the shrimp-based dish, as a plunge in regional currencies exposed companies loaded with dollar-denominated debt. The story of surging “tiger economies” such as Malaysia and Indonesia had come to an abrupt end — or so it seemed to some at the time.
The past two decades have instead told a tale of revival that is in some ways impressive. Problems that caused the previous implosion have been damped. But fresh risks lurk, ranging from property bubbles to potential contagion from problems in China. Most of all, a Southeast Asian region driven in good part by bulk manufacturing now has to deal with an era more defined by ageing populations, rising automation and technological advances.
Here are a few windows on how three of the region’s biggest — and, in 1997, hardest-hit — economies looked then and look now.
Economic expansion has taken a step-change down from the near double-digit or higher rates notched in the 1990s. But the long-term collapse some had feared did not happen. Indonesia and Malaysia have posted close to or above 5 per cent gross domestic product growth annually since 2000, apart from a couple of blips. Thailand has been more erratic. Growth there has been checked in part by a long political power struggle, triggered by a 2006 military coup and punctuated by sporadically bloody street protests.
One reason Southeast Asian countries are more comfortably placed in 2017 than in 1997 is the substantial increase in their foreign exchange reserves. Malaysia’s have dipped in the past few years, but at the end of last year they still stood at over three times their level at the close of 1996 — a rise of 6 percentage points as a proportion of GDP. Policymakers, executives and analysts say the regional corporate sector has a lower stock of dollar-denominated debt now than in 1997, providing further insulation from the impact of any pressure on domestic currencies.
Another sign of changed times is the state of the baht. The country’s on-off political tumult has not so far halted the currency’s slow haul back from its crisis-era lows of more than 55 to the US dollar. Indeed, the baht’s strength has become a bane for the country’s exporters. Given the country’s big current account surplus, that does not seem likely to change any time soon.
Malaysia tells a different story that highlights how contrasts have emerged within the region. Its current account surplus has fallen and the ringgit has dropped over the past two years, amid concerns about the country’s governance. The administration of Najib Razak, the prime minister, is embroiled in a scandal over the alleged theft of billions of dollars from the 1MDB state investment fund. Mr Najib and 1MDB have denied any wrongdoing.
The main regional equity markets reveal another story of divergence. Indonesia’s has gone on a long bull run, with occasional dramatic falls, to stand more than eight times higher on June 1 this year than it was 20 years previously. Thailand’s did not even treble over the same period, while Malaysia’s climbed just 58 per cent. Strikingly, Thailand’s SET index is lower now than it was in early 1994 at the height of the boom.
The varying fortunes underscore how Southeast Asia is a heterodox region economically, where income levels vary from the riches of Singapore to the poverty of Myanmar. The prospects of another tom yum goong meltdown are lower these days — but so is the likelihood of a return to the tiger-era growth that preceded it.