Nationalism in the noodle shop

24 October 1997

Last week Chang Noi was in a noodle shop near the stock exchange. These financial types are only just getting used to these cramped places with no air-conditioning, so they seemed rather overheated and talked loud enough to be overheard....

Bill: What a mess. What a fudge. The financial rescue package was completely watered down. The finance companies have been given another chance when most of them should be closed down. All the tough rules and regulations have been delayed for 2-3 years. The foreigners can buy up to 100 percent, but only for ten years. The government is still protecting the local finance bosses who caused all the mess. The country will pay.

Chai: True. It is a mess. But you know a lot of us felt the foreign banks were hoping the package would be really tough because they would benefit. It would provoke a fire sale, and the foreigners would be able to buy up everything cheap. We thought you were goading the government to make the package tough for your own benefit.

Bill: But you’re bankrupt. What’s the alternative? Rescuing all those lovable financial tycoons with money stolen from the people’s pockets? Some solution. Isn’t it better to let the foreigners buy in? The people don’t have to pay, and you get a better financial system.

Chai: We’re not sure about the last part. We liberalized a little bit, and we got this mess. If we liberalize more, maybe we get an even bigger mess.

Bill: But you liberalized so badly. Pegged exchange rate. No controls. Lots of political interference. The result was all this profligate lending to property speculators and over-ambitious dreamers.

Chai: But why do we get all the blame? It takes two to tango. You foreigners lent us all this cheap money. It’s very difficult to say no to someone lending you cheap money. Now you blame us for using it badly. But we were new at this game. You were not. The big international finance houses have done this same thing in many countries. How come they lent so much for so long? What were you all thinking about back in 1993 when the average price-earnings ratio on the stock exchange was pushing thirty? You thought it would go up further? Right up to the middle of last year, the money was tumbling in. How come no big international finance house said: this doesn’t look such a good idea.

Bill: You’re exaggerating.

Chai: No I’m not. Look back at 1995. Every week someone from an international finance or broking firm was announcing that the fundamentals of the Thai economy were still good, the long-term prospects were still sound, the market downtrend was reversible. You guys have very short memories. Now it’s all our fault.

Bill: So you’re blaming us for your mistakes?

Chai: No. Of course we did it badly. But I resent that the international financial houses refuse to take any share of the blame. Often the foreign lenders were more careless than the local ones. Look at the fights now going on over some of the property companies. The Thai finance companies lent against collateral. The foreigners lent clean. Now the foreigners are complaining that the Thais are ganging up against them, and that foreign lenders are being discriminated against. Actually, they are trying to accuse the Thais of nationalism to cover up their own mistakes.

Bill: Ah, nationalism. So you’re on Mahathir’s side. You think this is all a conspiracy to reimpose colonial control.

Chai: Not in those words. But a lot more Asians admire what Mahathir has said than you would like to think. He touches a chord. Westerners need to understand that. Scoffing at Mahathir doesn’t help.

Bill: But calling Soros a moron doesn’t help either. Soros is just market forces in human form. I thought Thais were all in favour of liberalisation and globalisation. But I suppose that was when globalisation was running your way. Now we have people like that Tris man who is out on the streets welcoming the freedom of the new constitution one day, then up in arms against freeing up the financial market to let foreigners in on the next. You can’t have it both ways.

Chai: But remember when the Arabs were buying into the US banks, and the Japanese were buying up Hollywood. The American press was horrified (actually more about Hollywood than about the banks, but then this was the USA). Was this the death-knell of western capitalism? Can’t we stop it? What’s the difference here?

Bill: Probably none. But this nationalism thing is dangerous.

Chai: I agree. But again there are two sides. I suspect a lot of westerners have got fed up with being told about Asian miracles. Last year even Governor Patten came out to say Britain should follow an "Asian model". I can understand that this was getting very tiresome. The language of Asian success was so aggressive too - all about tigers and dragons. I think this has made many westerners react with glee at this crisis. An Asian slump restores the proper order of things, with westerners telling Asians where they went wrong and how they could do better in the future. The problem is, these attitudes stir deep feelings. Both sides need to own up on this.

Bill: But getting defensive and nationalist isn’t going to help Malaysia, Thailand or any other stumbling Asian economy. Turning inwards you get.... well, you get Snoh Thienthong.

Chai: True. And there’s bigger reasons why you and I should not get emotional over all of this. Finance is only the froth. Beneath all of these market forces which are tossing us around, there are bigger social and economic forces churning. Why did all this money flood out of the west to Asia? In the west, you had a rich ageing population and the collapse of the welfare state. The result: huge pension funds. You also had the business cycle on the downturn, so the fund managers were looking elsewhere. In Asia you had a poor young population ready to work hard. And a business cycle on the upswing. So the money came flooding out. I can remember these London fund managers ringing me up saying: I’ve got all this money, can’t you help me do something with it. Many times. Just a couple of years ago.

Now the cycles are going the other way. The western financial markets are airborne. Asia’s on the downswing. So the money flows back. Behind all the shouting, that’s the story.

Bill: So finance is just thrashing around in the froth? I though we financiers ruled the world?

Chai: You probably do. Maybe the problem is that these money flows mean different things to you and to me. For western finance, Thailand is a bit of a sideshow. Somewhere to have a flutter with your funny money. So you put the money in and then you take it out. For you, it’s not such a big deal. But for us, the same inflow and outflow is a big deal. It knocks our tiddly little financial system all over the place. We do get a little distraught.

Bill: But why should we stay? Look around you and give me one good reason.

Chai: I can’t. But it’s like you’re saying: "We’re taking our money away because we don’t like it here any more. We’ll stay only if you let us buy up your banks." And we’re saying to ourselves: "Do we have to deal with these ungracious people. If we go along with this now, it will be the same for evermore."