Regional Finance Roundup – A look at Thailand after the ASEAN summit cancellation; updates on China, Singapore and Mongolia

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ImageIn terms of big newsworthy events in Asia, one of the biggest has to be the anti-government protests in Thailand. A relatively small number of protesters dramatically caused the cancellation of an ASEAN+3 meeting held in Pattaya this past weekend where 10 regional heads of state were evacuated. The World Bank President, as well as the head of the IMF and UN, were turned around at the airport in Bangkok. Although the protests around the country have effectively ended after martial law was declared and two protesters died, the damage of this may be longer-lasting. Although a discussion of the politics would be interesting, let's concentrate on the finance-related issues.

Foreign Direct Investment in Thailand is already down given the prior political unrest there as well as the global economic crisis, but this week the ratings agencies began downgrading Thailand. Before the latest round of political turmoil, the central bank was warning of increased non-performing loans (NPLs) in the banking system (the NPL ratio is already at about 6%), so the current domestic problems will only exacerbate the problems in the financial system. To offset the decreased FDI and to support fiscal spending plans, the Thai Ministry of Finance is seeking to borrow more, including $1 billion from the World Bank. The ASEAN summit was intended to discuss (pdf) the financial crisis and follow-up to the G20 conference in London. China had planned to announce a $10 billion ASEAN Investment Fund at the summit, and to announce $15 billion in potential credit to ASEAN countries, both of which would be oriented to infrastructure investments.  

Staying in China, we have seen the sixth straight month of decline in foreign direct investment. FDI dropped 9.5% to $8.4 billion in March, however this is not as bad as the decline in February, when FDI fell by 15.8%. So, some may see a silver lining in the sense that the rate of erosion is slowing. However, these declines are serious given that foreign-invested businesses account for 30% of industrial output, 55% of trade and 11% of urban jobs.

Also, staying in China, a prominent research institution just came out with an estimate that real estate prices are projected to fall by 50% over the next two years (pdf). This is after a tripling of housing prices over the past five years. This may simply bring prices back into line with incomes given that housing prices are now over 10 times the average income. Despite the continuing bad news, or less worse news, optimistic reports and commentators (including our own Vice President for East Asia and Pacific) are calling a bottom to the economic slide in China.

Singapore, the "canary in the coalmine" for world trade, has entered into a very severe recession now. Singapore witnessed a 20% contraction in the economy in the first quarter (on an annualized basis). This downturn was led by the 11th straight month of decline in exports (exports fell by 17% in March) since exports account for about 60% of Singapore's GDP. On the bright side, one might say that the export decline is less bad than the prior months, so the deceleration is slowing. However, the impact of this rapidly deteriorating situation has begun to flow through the balance sheets of the banks, with a sharp uptick (pdf) in non-performing loans (NPLs) since late-2008. Although it should be said that the overall level of NPLs is low (under 2%), NPL coverage is over 100%, and the banks are reportedly well-capitalized at over 10%.

Finally, to Mongolia. It has been one of the hardest hit countries in Asia and thus, one of the most active countries in the region in terms of crisis-related activities. The Government has agreed to an 18-month Stand-By Arrangement of $229 million in balance of payments support for the central bank. This will be complimented by $165 million from the World Bank and another other donors, including the Asian Development Bank, Japan and Australia. The global downturn has hit Mongolia hard (pdf), predominantly due to the slump in mineral prices which returned the prices of Mongolia's main exports back to their 2004 levels – the price of copper fell 60% from March 2008 to April 2009. Warnings of new NPLs are still on the horizon, and the latest data shows that loans-to-deposits ratios are still above 100% with loans with principal in arrears have increased further.

Otherwise, we just released our bi-annual economic update for the region, so please take a look to get the latest on the trends in East Asia and Pacific. Also check out the transcript of an online chat held today with the report's lead authors and join the discussion on this same EAP blog with our economists in Cambodia, Lao and the Philippines on this report.


James Seward

Senior Financial Officer

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