By: Our Correspondent



the 500 or so investors who gathered at Singapore's Speaker's
Corner in an unprecedented protest over the alleged mis-selling of
now-worthless financial products linked to Lehman Brothers, the pain
of the global banking crisis is real enough. But for the most part,
Singapore and the rest of Southeast Asia have escaped relatively
unscathed from the mayhem in the West thus far. Whether that can
last, however, is problematical.

markets across the region have taken a battering as panicky
international and local investors have sucked money out of shares in
the midst of the credit crisis to fund operations or stuffed it into
the nearest bank with a government deposit guarantee. The rout has
continued this week, with benchmark indexes continuing to slump. The
MSCI Asia Pacific Index came off 7.8 percent on Thursday and appears
set for its biggest decline on record.

week Singapore became the first major Asian economy to enter a
technical recession after suffering two consecutive quarters of
falling growth. But talk to a real estate agent, an investment
banker or even a taxi driver about the economy and there is little of
the pessimism and fear that you get when asking people in London,
Paris or New York about the same subject. The pints of imported lager
are still being gulped down with just as much confidence and bravado
at Harry’s Bar and the other riverside drinking establishments
frequented by expat financiers on their way home from work in
Singapore’s central business district.

don’t get a sense of panic yet," noted Wai Ho Leong,
economist at Barclays Capital in Singapore.

very hard, however, to know whether this relaxed atmosphere is a sign
of true confidence or complacency. Are Singapore and the rest of
Southeast Asia, really in a much better position to weather the
global financial storm than in 1997? Or is this merely the calm
before the storm? Indonesia and Malaysia, which form Singapore's
hinterland, between them produce 85 percent of the world's palm
oil and Malaysia, Indonesia and Thailand produce 75 percent of the
world's rubber – at a time when commodities markets have
been diving precipitately.

Malaysia and Singapore are heavily exposed to the electronics markets
for computers, semiconductors, computer parts, televisions and other
electronics. Ominously, electronics now account for US$30 billion of
Malaysia's US$36 billion in exports to the United States, which
is falling into recession.

Asia has not yet been tested in the same way that the US and Europe
have been. Across the region, it remains a bastion of foreign
exchange reserves – more than US$3 trillion, with US$1.9
trillion in the hands of China alone, and with governments,
particularly China, seemingly willing to call on those reserves to
preserve the state of their economies. There have been no major
financial shocks – bank balance sheets and government reserves
were rebuilt n the wake of the Asian financial crisis of 1997-1998 so
that there have been no significant bank collapses and no massive
government bail-outs.


far, Asia has only faced the secondary effects of someone else's
meltdown but, despite the dramatic governmental interventions of the
last week or two, this crisis clearly has some way to run as global
investors desert local markets in pulling back money to fund their
distressed domestic operations.

instance, Donald Tsang, Hong Kong’s chief executive, warned
this week that the current financial squall is worse than the Asian
crisis of 1997 and will take longer to recover from.

financial tsunami we now face is a global crisis," he said in
his annual policy address. "Its destructive force is much
stronger and more widespread than the Asian financial turmoil in
1997. The recovery will take longer, be more difficult and certainly
cannot be taken lightly."

Tsang insisted that Hong Kong is in much better shape to get through
the troubles. "That said, our financial infrastructure is more
robust than it was in 1997," he added. Earlier this week, the
Hong Kong government, which holds US$112 billion in foreign exchange
reserves, said it would bail out any local bank that gets into
trouble over the next two years – which analysts interpreted as
an attempt to stop accounts flooding out of lesser banks and into the
coffers of banking giant HSBC.

economists in Singapore agree that the city-state, which holds a
whopping US$163 billion in foreign reserves as of January, is in an
equally strong position.

ripples from the financial crisis will hit some time next year in the
first quarter because of slower export growth as spending habits
change in the US and Europe," explained Barclays Capital
economist Leong. "But Singapore is entering this crisis from a
position of strength. The economy had been structurally reformed over
the last four years. Singapore has been drawing expat talent for the
last few years and unemployment is at an all time low.

also in middle of largest building boom in our history, with more
than S$120bn (US$82bn) worth of industrial, commercial and
infrastructure developments on the ground. We have buffers like

its last recession in the wake of the dotcom bubble, Singapore has
indeed reduced its reliance on exports to the US and Europe and
increased its trade links with the large and growing consumer markets
in China, India and the rest of Asia.

I think the idea that Asian economies can ever be 'de-coupled'
from what is happening in the US and Europe is complete nonsense, it
does seem as if the region in general, and Singapore in particular,
are much better prepared for a global downturn," added another
regional economist.

major shock such as a large bank collapsing would no doubt send waves
of panic throughout Asia. But Asian banks are much stronger than they
were in 1997 and have been careful to avoid taking on the levels of
leverage that made the likes of Lehman Brothers and Merrill Lynch so
vulnerable. "In 1997, the banking sector was much weaker across
the region but capital ratios have been built up since then and there
hasn’t been the sort of property/credit bubble seen elsewhere,"
explained Barclays’ Leong.

sentiment is echoed by one Singapore-based fund manager who has been
investing across Southeast Asia for more than decade. "What a
lot of people in Asia who’ve been through the 1997 crisis know
is that there’s a huge structural difference between now and
then," he said。 "Balance sheets in Asia are quite healthy
and not that highly leveraged."

US and Europe have to swallow a big nasty pill," he added. "But
capital flows to where there's growth and, right now, that's

now, he’s certainly right. While central bankers and economists
across the region have been edging down their forecasts, most are
still planning for steady growth. But these are volatile and
turbulent times. It has only taken a few days for the initial
euphoria that followed the launch of the banking rescue plans in the
US and Europe to fade into deepening gloom. Yet, even as the
contagion looks likely to spread further, Southeast Asia’s
economies look better prepared than ever before.