Page last updated at 01:36 GMT, Friday, 27 February 2009

South East Asia woes as downturn bites

As South East Asia's leaders gather for a summit dominated by the global downturn, the BBC's Jonathan Head looks at how economies in the region are faring.

Sukanya Samang has never heard of the concept of "decoupling". But if she had, she would now know from bitter personal experience that it is a myth.

Sukanya Samang
Sukanya Samang has lost her job at a car parts factory

The idea, put about in recent years, was that East Asia's economies were developing so well, with growing domestic demand and trade among themselves, that they would be much less vulnerable to an economic downturn in the rest of the world.

Unlike the 1997 Asian financial crisis, most banks in this region are reasonably healthy, with limited exposure to toxic sub-prime loans, and most countries have very healthy foreign currency reserves.

Sukanya Samang is one of the legions of poor Thais who have taken up the labouring jobs that have opened up as European, American, Japanese, Korean and Taiwanese manufacturers have built factories in the lower-wage economies of South East Asia.

Her husband is a security guard. And until January she worked in a warehouse packing car parts for Thailand's huge auto industry. She has an 18-month-old boy, and is heavily pregnant with her second child.

But when she and her fellow workers came back from their New Year break, they discovered they had been laid off.

If the world economy fails to recover, then we, like everyone else here, will be in real trouble
Korn Chatikavanij
Thai finance minister

Their employer had craftily dismissed them just a day before they had worked a full year - meaning they get no compensation. She says she has no idea what she will do now. Her medical expenses are already a strain.

"It was unfair what they did to us," says fellow worker Sombat Doklam. "We got no warning, so we've had no chance to look for another job. And right now there are no jobs around."

Today, the dismissed workers sit around the bare dormitory that has been their home for the past year.

Most will return to their villages, many in the impoverished north-east, on their motorbikes, prized symbols of their new-found prosperity. They still owe payments on the bikes, and may not have them for long.

'Real trouble'

The myth of decoupling is shattered in Thailand with a simple statistic. Decades after this country embarked on an export-led drive for growth, the domestic economy is still surprisingly small.

Exports make up an astonishing two-thirds of GDP, compared to just one-third in China. Neighbouring Malaysia is even more dependent on overseas markets; Singapore even more so.

A man waters flowers opposite one of Thailand's big industrial estates along its eastern seaboard
Some of the region's economies are still heavily export-led

There is no way, then, that South East Asia can avoid the pain caused by the sub-prime mess in its main markets in the West.

Exports from Singapore plunged by a record 35% in January. They fell 25% in Thailand - and that after a 15% drop in December.

The Thai economy shrank by an annualised rate of more than 6% in the last quarter of 2008. Singapore is predicting its economy will shrink by 5% this year.

So what can the governments in this region do to ease the pain? Not much.

The economy will dominate the ASEAN summit in Hua Hin in Thailand this weekend, but the 10 member states can do little else but hope, and pray for an early recovery in Europe and the US.

"We can keep the Thai engine probably for the next couple of years," said Korn Chatikavanij, the Thai finance minister, in an interview with the BBC, after pushing a record $11bn (7.7bn) stimulus package through parliament.

"I'm hoping that's enough time for our trading partners to recover. If the world economy fails to recover, then we, like everyone else here, will be in real trouble."

Anecdotal evidence of economic pain is all too easy to find here in Thailand.

At a high-end clothes shop in Bangkok, a saleswoman told me sales had plunged by 80% over the past year, wiping out the commission that usually makes up two-thirds of her salary.

New trucks being exported to the port of Rayong in Thailand
Thousands of jobs have already been lost in Thailand's auto industry

She fears she will not be able to continue making payments on the car she bought recently.

A taxi driver says he has to work extra shifts now that his wife has lost her job in a factory - but he has noticed a sharp drop in passenger numbers this year.

The Thai Ministry of Labour says 163 companies shut down in January. It believes at least half a million jobs will be lost this year.

"That's if our stimulus plan works," says Korn Chatikavanij. "If it doesn't, the number could be one million."

For a country already suffering the effects of a protracted political crisis, those are ominous predictions.

Bright spots?

In the Philippines, one of the biggest fears is that its millions of overseas workers, whose remittances account for more than 10% of GDP, will start losing their jobs in other countries.

The same trend could also affect Burma, a country so impoverished and isolated from the global economy it is hard to see the sub-prime mess having much impact.

But tens of thousands of Burmese work in the world's shipping fleets as seamen - and shipping is being hammered by the global slowdown.

Are there any bright spots in South East Asia? The largest country in the region, Indonesia, is less dependent on exports so should weather the crisis better than its neighbours.

But with so many of its 240 million people living close to the poverty line, and 2.5 million new job-seekers entering the employment market every year, any economic decline, however slight, will hurt.

But what about the world's youngest country, and one of its poorest? Yes, little East Timor, an island-half at the far end of the Indonesian archipelago that barely had an economy for its first few years of existence, actually grew more than 10% last year.

I met the East Timorese President Jose Ramos-Horta last month, and he was remarkably upbeat about his country's prospects this year.

Revenues from East Timor's offshore oil and gas would decline sharply this year, true, he said, but then the government has only just started spending those revenues anyway. And that spending is clearly having a positive effect.

East Timor is starting to grow from a very low base of economic activity. But at least that should spare it, alone in this region, from the jarring impact of a downturn which could prove even worse than the traumatic crisis that engulfed South East Asia 11 years ago.

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