Asia Times: COLUMN: Who's going to take the rap?



	January 21, 1999	atimes.com

Asian Crisis

COLUMN: Who's going to take the rap?
By Uwe Parpart
Asia Times Online Editor

The IMF and other multilateral and bilateral official lenders have committed or shelled out some $100 billion in loans to - mainly - three East Asian countries, Thailand, Indonesia and South Korea, to help prop up their currencies and prevent them from going bust.

Those three economies had racked up three times that amount since the late 1980s in external (principally private) debt, and well over that same sum again in domestic debts, for a cumulative total of approximately $750 billion. Companies in Korea, but also in Thailand (Indonesian figures have never been assembled), got to the point of operating at debt-to-equity ratios anywhere in the 300 to 500 percent range.

No need to raise here again the issue of who's to blame or whether the IMF bail-out actions were well- or ill-advised. That debate has been kicking around for over a year now and will not soon be resolved to any general satisfaction. The issue now, on which crucially hangs the issue of future in-depth economic recovery in East Asia, is how huge losses, incurred as much of the total debt went bad, are to be apportioned and who's going to take the rap.

If non-performing loan ratios or asset auctions are to be a guide, lenders will likely have to live with getting 30-50 cents on the dollar on their loans as the dust settles, and borrowers will lose equivalent amounts in their equity holdings. The battle is over losses of some $300 billion in assets - and that's a conservative figure.

Naturally, every private lenders' or shareholders' favorite assignee for shouldering the burden is the general public. Indeed, taxpayers in Thailand and Korea are likely to be saddled directly or indirectly with one third or more of the sums at issue.

Loss apportionment in the private sector meanwhile is redrawing the map of business holdings not just in the three countries mainly at issue but thoughout East Asia, to an extent not seen in generations. Two dozen or so families each in Thailand and Korea - fewer in Indonesia, where the one Suharto clan had its hands in virtually every corner of business - once WERE business in those countries. Loss-distribution will not make them disappear from the scene; but it is already a foregone conclusion that their holdings will be vastly diluted and that a much broader wealth distribution (including greatly increased foreign holdings) will result.

In Korea, the family-owned chaebol (conglomerates) are trying to hold on for dear life. But the handwriting is on the wall: State-mandated disinvestment and loss of control over the banking sector and easy political credits will greatly change ownership structures. The major chaebol themselves - including under their umbrellas many world-class companies - will not disappear, but a very significant diversification in share-holding is under way and will soon challenge family control.

In Thailand, the changes are even more dramatic. Of 15 formerly family-owned commercial banks, four have been nationalized at virtually complete loss of family holdings; two have been taken over by foreign financial institutions, with two or three more likely to follow; and huge recapitalization needs have even brought family holdings in the big two, Bangkok Bank and Thai Farmers Bank, down to just over 50 percent - and to the brink of loss of control. With large industrial outfits in almost all sectors of business the situation is no different. A case in point, reported in a Bangkok Post article (see following link), is the fortunes of the Leophairatana family, founders of Thai Petroleum Industry Plc. (TPI).

Rear-guard battles against loss allocation are currently being fought by a group of Thai senators opposing new, more effective bankruptcy and foreclosure legislation. In Korea, such attempts at obstruction take the form of erecting administrative hurdles to enforcement of new legislation already on the books. But these are delaying tactics that ultimately will come to nought.

East Asia will recover. As the result of the debt workout exercises and the institution of new regulatory and legal frameworks, post-crisis Asia will emerge a vastly more investor-friendly environment, with much-improved wealth distribution, more chances for new entrepreneurs and the reduction if not complete elimination of family oligarchies' strangleholds on countries' economic fortunes.