[Pemikir ekonomi Malaysia yang kununnya berwawasan telah tertipu oleh perkembangan IT sehingga melabur sebegitu banyak wang untuk itu sedangkan pasaran dunia sudahpun tertepu. Akibatnya ramai yang menjadi mangsa dihenyak pembuangan kerja. Menurut seorang anlis tempoh untuk pulih semula mungkin lebih lama. Malah lebih lama dari krisis sebelumnya.... Kalaulah Malaysia sedikit pandai kita tidak akan terjejas sebegini rupa. Namun sesal kemudian sudah tidak berguna. - Editor]

http://www.feer.com/0107_26/p048money.html

Far Eastern Economic Review

ECONOMIES

Don't Count on The Cavalry

The U.S. economy is expected to turn around in the next few months, but its businesses won't be riding to Asia's rescue. The world has changed since 1999

By Tom Holland/HONG KONG

Issue cover-dated July 26, 2001

ONCE AGAIN there's a whiff of economic panic in the air. Over the first half of July the bad news came in thick and fast. Global semiconductor sales dropped by 20% in May compared with the previous year. Malaysia's exports fell by 7%. Taiwan's exports plunged by 16.6% in June, while Singapore's economy contracted for the second quarter in succession, pushing the island into recession. Even China's exports, long thought to be immune to global contagion, caught the chill, registering a drop of 0.6% in June. For two weeks, blow followed blow, bludgeoning sentiment among even the most optimistic economic analysts.

Even so, the pundits did their best to look on the bright side. This was Asia's darkest hour, they said, and the dawn would soon follow. The fastest, deepest series of interest-rate cuts in a decade, coupled with President George W. Bush's massive tax cuts, would soon revitalize an ailing economy in the United States. Eager to make up for lost time, America's corporations would resume their spending on information technology, and Asia's exports would rebound as promptly as they had earlier collapsed. Just as in 1999, the Americans would once again ride to Asia's economic rescue, like the cavalry galloping over the horizon to save the beleaguered pioneers in a black-and-white Western--in the nick of time.

Unfortunately, it won't be like that. The U.S. economy may well snap back--the combination of interest-rate and tax cuts is a powerful restorative--but technology spending will take longer to recover. And when it does, the investment pattern will have changed. Asia will no longer be the beneficiary.

It's all a brutal reversal of the picture just two years ago. Then, a combination of low interest rates, sky-high stockmarkets, fear of the Millennium bug and euphoria over the Internet triggered an unprecedented boom in technology investment. America's corporations rushed out to buy new hardware and Asia's factories were ready to supply it. The region's economies were perfectly positioned to ride the electronic tidal wave to recovery. For many people in Asia the gut-wrenching economic crisis of 1997-98 soon faded to little more than an unpleasant memory. The region's hefty investments in electronics manufacturing had paid off handsomely.

It didn't last. "Corporate America lost discipline during the bubble," says Stephen Roach, chief economist at Morgan Stanley Dean Witter. In the scramble to reinvent themselves as New Economy companies, he says, U.S. corporations "panicked and bought a lot more IT than they knew what to do with."

The result was an earnings crunch which is only now beginning to abate among Old Economy companies in the U.S. and an excess of technological capacity which Morgan Stanley's analysts estimate to be worth anywhere between $200 billion and $400 billion. Others put the figure at closer to $500 billion. For the time being, America's companies aren't spending on new technology. In May, new orders for computers and electronic products in the U.S. were down by 35.5% compared with May 2000 as capital expenditure evaporated.

The impact on East Asia's exports and economic growth has been catastrophic. Between January 2000 and July 2001, the price of standard 64-megabyte DRAM chips dropped by 90% from $8.93 to just $0.92. In the countries that had invested most in electronics production--Malaysia, Singapore, Korea and Taiwan--exports contracted sharply in the second quarter.

And it's going to get worse. "We haven't seen anything yet," warns Dong Tao, senior regional economist at Credit Suisse First Boston in Hong Kong. Tao explains that Asia's export figures lag U.S. electronics orders by around three months. In other words the crushing 21% year-on-year fall in Singapore's electronics exports recorded in June reflects the 7% drop in U.S. orders in March. The massive 45% plunge in U.S. orders over April and May taken together has yet to hit the region.

"Asia is going to go into export shock. I anticipate a very, very bad third quarter," says Tao, predicting a 30%-40% year-on-year decline in exports compared to last year. Singapore, where electronic products make up more than 50% of total exports, is already in recession. Taiwan, where the proportion is almost as great, looks set to follow.

With few policy options at their disposal, Asian governments are pinning their hopes on a recovery in U.S. corporate profits over the second half of the year and a rebound in investment spending early in 2002. The Federal Reserve's six consecutive interest-rate cuts plus this year's $40 billion tax rebate add up to powerful medicine for the U.S. economy.

According to Stephen Slifer, chief U.S. economist at Lehman Brothers in New York, experience shows that taxpayers are likely to spend around 50% of their rebate cheques. That alone will add 0.8 of a percentage point to U.S. GDP growth this year.

It won't happen overnight, but Asia's policymakers hope that with U.S. economic growth picking up, and corporate profits turning positive, sooner or later the recovery will feed through to the region's exporters. "My guess is that U.S. demand for Asian electronics probably would not pick up until nine months from now," says Friedrich Wu, director of the economics division at Singapore's Ministry of Trade and Industry.

RISING CAPITAL COSTS

Even that cautious outlook may prove overly optimistic. So far the Fed's interest rate cuts have done nothing to lower the cost of investment capital for the typical U.S. corporation. Since the beginning of the year, when it initiated its latest round of cuts, the Fed has reduced its key short-term interest rate by 2.75 percentage points. Over the same period the yield on BBB-rated corporate bonds has fallen by just 0.13%. With the broad U.S. stockmarket down 8% over the same period, equity financing has actually got more expensive.

And even if the cost of capital were to fall to zero, it is unlikely that companies would rush to load up on new hardware, given the size of their excess capacity overhang. "It could be a year or two before we see signs of recovery in semiconductor investment," warns Julie Hudson, global strategist at UBS Warburg in London.

When spending does finally recover, IT managers will be under pressure to show a clear and tangible return on their investments. This means they will focus first on software to reduce costs. Replacing the sort of hardware manufactured in Asian factories, which are heavily geared towards personal-computer production, will be "a very, very low priority" according to Michael Grant, San Francisco-based head of global technology at Schroder Investment Management International. "The PC is old technology. It's not where you want to be focusing your investment energies," he says. Of his $179 million global portfolio of technology investments, 62.7% is allocated to the U.S., and only 10.6% is invested in Asia.

If Grant is right, the outlook for Asia is grim indeed. Countries in the region, Taiwan and Singapore especially, have over-invested in just one sector--electronics manufacturing--leaving them highly vulnerable to shifts in technological evolution. And as the steep drop in capital-goods imports to the region over the first half of the year shows, there is little money around just now for re-engineering Asia's overexposed economies.

This not the Asian Crisis Part II. The region's robust current-account surpluses, more flexible exchange-rate regimes and lower levels of short-term foreign debt preclude the sort of overnight currency collapses seen in 1997. But the risk is that this downturn could be even more deep-seated and longer-lasting than the short-lived crunch of 1997 and 1998.