US press: pick of the papers

The ten must-read opinion pieces from today's US papers.

1. Iran is ready to talk (New York Times)

With Iran reeling from sanctions, the proper environment now exists for diplomacy to work, writes Dennis Ross.

2. The health care law in red and blue (Politico)

Many GOP congressional districts have much to gain as the new heath care coverage rolls out, say Larry Levitt, Drew Altman and Gary Claxton.

3. Containment won't work against Iran (Wall Street Journal)

It is becoming popular to invoke the Cold War, when the policy of containment managed to avoid all-out war with a nuclear Soviet Union. But the analogy fails on several grounds, writes Daniel Schwammenthal.

4. Rick Santorum's pincer movement (New York Times)

Santorum's advantage is that he can get to Romney's right and to his left at once, writes Ross Douthat.

5. Does the GOP care about Latino voters? (Washington Post)

When it comes to Latino voters, Republicans must have un impulso suicida, says Dana Milbank.

6. Just how much does Gingrich hate Romney? (Roll Call)

Stuart Rothenberg asks: Is Romeny's bitterness and animosity toward the former Massachusetts governor so deep that he is willing to put aside his personal ambitions and yield the spotlight, in which he clearly revels?

7. Polarization and the Independents (Weekly Standard)

The independent vote will be determinative in November, writes Jay Cost.

8. Drumming up a phony war on religion (Washington Post)

It is Rick Santorum who wins the award for histrionics. Progressives, he said last week in Texas, are "taking faith and crushing it," writes Eugene Robinson.

9. The limits of European solidarity (Wall Street Journal)

To avoid a complete breakdown, Brussels panjandrums must recognize that a one-size-fits-all approach to Europe is no longer sustainable, say Naruab Tupy and Richard Sulik.

10. Obama can't have it both ways on taxes (Washington Examiner)

Raising taxes on any working American will hurt the economy for everybody, says this editorial.

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The Asian Financial Crisis 20 years on

In the four years between 1993 and 1996 the tiger economies of Asia led the world in terms of gross domestic product (GDP) growth and stock market returns as foreign and local investors piled in and embraced the opportunity.

In the four years between 1993 and 1996 the tiger economies of Asia led the world in terms of gross domestic product (GDP) growth and stock market returns as foreign and local investors piled in and embraced the opportunity. But trouble was brewing and Thailand was the canary in the coal mine. Strong growth was being funded by ever increasing levels of debt and with offshore interest rates far more attractive than those available at home, US dollars became the funding currency of choice.

While currencies remained pegged to the US dollar risks were minimal but as a growing trade and current account deficit and rising inflation led to increasing overvaluation of the Thai Baht, speculation grew and short-term money started to move out of the Thai currency.

In July 1997, after a futile attempt to stem the outflow, the Thai central bank removed the peg triggering an immediate 25% fall in the currency - by the end of the year it had lost half of its value. The impact on the economy was devastating. Interest rates initially spiked making dollar debt significantly more expensive. Loans started defaulting, peaking at almost 50% of total loans in 1999. The figures reflect the severity of the downturn: GDP took five years to return to pre-crisis levels, consumption – the use of good and services by households - was four years, and private sector loan growth only returned to positive territory in 2002.

Although Thailand was the trigger, the ticking time bomb of unhedged foreign currency debt and a  prolonged period of over-exuberance prevailed across all of South East Asia.  The Philippines and Malaysia were also significantly impacted but the most significant downturn occurred in Indonesia, which, although running a current account deficit only half the size of Thailand, saw its currency go from 2000 rupiah to the US dollar to 16000, and bank loan books fill up with defaulting loans.

Contagion and a severe lack of confidence dented the whole region and although Hong Kong managed to hold on to its peg to the US dollar, a prolonged period of high interest rates and slower growth resulted in a 40% fall in residential property prices and a deflationary period that took many years to recover from. Even South Korea, which was the 11th largest global economy at the time, had to call in the International Monetary Fund (IMF) as interest rates ballooned and the currency weakened.

The recovery, which on average took more than 5 years, was supervised by stringent IMF requirements and has put Asian economies on a much firmer footing. With a few exceptions Asian currencies are free floating, meaning their value is determined by the foreign exchange (forex) markets through supply and demand, and as a result they have much more flexibility to reflect domestic economic cycles ensuring that pressures don’t build. Current and trade accounts, with the exception of India and Indonesia, are now in surplus, with the practice of unhedged foreign borrowing all but ended. Short term foreign debt in ASEAN (the Association of South East Asian Nations) nations has dramatically dropped from 160% to now less than 30%.

The Global Financial Crisis (GFC) in 2008 was borne out of exuberance in the West but not in the East and although Asian economies were impacted by the slowdown in global growth, Asian economic credibility was never called into question.

The only economy that is showing a worrying trend is China. A credit boom following the GFC has seen debt-to-GDP balloon from 160% in 2008 to 260% in 2017. The nature of this debt however is different from that accrued by South East Asian Countries in the late 1990’s. Firstly, most of the debt lies with state owned enterprises (SOEs) and is hence backed by the >$3tn worth of foreign exchange reserves, and most of it is denominated in renminbi. Secondly, although China operates a managed exchange rate regime against a basket of trading currencies, the capital account is closed which restricts the amount of speculative flows. Finally, a lot of the debt is owned by domestic institutions and is long term in nature which reduces the likelihood of enforced withdrawal leading to a liquidity crisis.

The impact of the Asian crisis lives long in the memory of Asian corporates. The days of rapid expansion and growth for the sake of growth have gone and been replaced by conservatism and a focus on cash flow and profitability. Corporate debt levels are at all-time lows while cashflow compares favourably to any other region of the world. Interestingly it is developed economies that are now showing the stresses Asia encountered and recovered from 20 years ago; Asia in comparison looks favourable.

1 Debt can be issued in a various currencies and because the value of these can shift around, hedging is process of protecting yourself against adverse movements, usually through the use of derivatives.

The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services.