William Heinecke has never seen anything like it. The US-born founder of a Bangkok-listed hospitality group has weathered the 1997 Asian financial crisis and the economic fallout of the 2004 tsunami that destroyed one of his company’s hotels.
But the coronavirus pandemic, he says, is hitting his business with a far greater force.
“The Asian financial crisis was a walk in the park compared to what we are going through now,” said Mr Heinecke, chief executive of Minor International, which has a portfolio of 535 hotels and more than 2,200 restaurants in Thailand and overseas.
“All we had to contend with then was that the baht collapsed and there was a shortfall in income, with dollar debts to pay and baht income coming in. But, today, there’s almost no income,” he added.
Businesses across Asia’s emerging economies are in a similar boat, albeit with varying degrees of severity. As the pandemic spreads through India and south-east Asia — which together are home to about 2bn people — the health emergency is quickly mutating into an economic crisis.
“Asia is in the midst of a devastating recession,” said Gareth Leather, senior Asia economist at Capital Economics, a research firm. “Even if the virus is contained, recoveries will be very gradual.”
Just as at the onset of the Asian crisis, one of the first harbingers of pain has been capital outflows from the region’s stock markets. Foreign investors have withdrawn a net $26bn from the stock markets of Malaysia, the Philippines, Thailand, Indonesia and South Korea this year to April 14.
This exceeded the amount withdrawn during the worst three months of the 2008 global financial crisis but, measured as a proportion of countries’ gross domestic product, remains short of the capital flight seen during the Asian financial crisis, analysts said.
India has also been stricken. In March, foreign investors pulled a record $16bn from Indian financial markets — more than during all of 2008, official figures show.
It is uncertain how this crisis will unfold. But the IMF forecasts a range of outcomes for 2020. The economies of Thailand and Malaysia are expected to see a contraction of 6.7 per cent and 1.7 per cent respectively, while Indonesia, Vietnam and the Philippines should all see GDP growth. India is expected to achieve 1.9 per cent growth, an estimate that many independent economists regard as too optimistic. China, after contracting 6.8 per cent in the first quarter, is on course for a measured recovery.
Much depends on the ability of countries to mount effective stimulus packages to offset the damage. Thailand has already committed a total of $80bn to shore up vulnerable parts of the economy — an amount equal to 16 per cent of GDP — and Malaysia has announced a package of $59.6bn, also equal to 16 per cent of GDP.
“Emerging Asia is much better insulated than on the eve of the Asian crisis in 1997,” said David Lubin, head of emerging markets economics at Citigroup. “Asian countries in the main have spent the last 20 years building up their reserves to help them weather exactly this type of storm.”
In most cases, stimulus is directed at helping small and medium-sized enterprises. Thailand’s central bank, for instance, is making available to banks Bt500bn ($15bn) in soft loans at 0.01 per cent interest. The banks are then supposed to on-lend these to businesses at 2 per cent interest, a concessionary rate.
But economists warn that many countries in the region are having to strike a delicate balance. Financing stimulus packages by ramping up government debt and cutting interest rates at a time of capital flight runs the risk of depressing the value of national currencies against the US dollar.
Indonesia is a case in point. Its central bank has cut interest rates and scrapped its 3 per cent budget deficit cap as it pulls out the stops to avert a humanitarian crisis, but such actions have ended up hastening the rupiah’s depreciation.
Still, many people believe that humanitarian concerns must take precedence. “Initially, all policy instruments should be used at full throttle,” said Hamza Ali Malik of the UN’s Economic and Social Commission for Asia and the Pacific. “What I mean by that is, irrespective of fiscal positions, governments should really go out and help people.”
India is caught between several hard choices. The country’s sweeping lockdown has generated concerns about a huge humanitarian and hunger crisis, as the incomes of millions of informal and casual workers have collapsed. Indian business groups have also pleaded for government help to withstand the shock of a total loss of revenues.
Yet so far, Prime Minister Narendra Modi’s administration has offered only meagre assistance with a stimulus package that amounts to just 1 per cent of GDP. Economists said the reason for New Delhi’s reluctance was partly due to its stretched financial position.
New Delhi knows that with a government debt to GDP level of 68 per cent, a fiscal splurge may be seen by the market as reckless. Already it appears likely that India’s plan to keep its fiscal deficit to just 3.5 per cent of GDP is out of reach as tax revenues collapse and the proceeds from privatisations of public sector assets such as Air India are unlikely to be realised.
But some analysts said that delaying a much-needed large stimulus package could worsen the crisis.
“You really need to provide income support and a lot of it,” said Jahangir Aziz, head of emerging market economics at JPMorgan. “Without income support, the balance sheet of households — and also the big corporates — could be damaged to the point that when the recovery happens they will not be able to be part of the recovery.”