By Keith B. Richburg
Washington Post Foreign Service
Sunday, March 15, 1998; Page A22

HONG KONG—The region's currencies have largely stabilized -- they are far lower in value, but no longer plummeting. Stock markets have ended their downward slide for now. Parliaments are revising laws, opening up closed economies and allowing foreigners larger chunks of the pie. And overseas firms are already in the neighborhood, cautiously poking through the rubble in search of bargains.

Is the worst finally over for Southeast Asia's ailing "tiger" economies? After eight months of financial turmoil, is the region now looking at recovery?

Not quite, say economists and regional analysts. In fact, most warn that the worst is yet to come.

"The economic shoe is only just beginning to fall," said David Roche, chief strategist for the London-based group Independent Strategy. For one thing, he said, the region has not yet experienced the major fall in industrial production -- or the widespread layoffs -- expected later in the year, particularly in South Korea and Thailand as they begin to implement the painful restructuring programs mandated by their International Monetary Fund bailout packages.

"In the next three to six months, we're going to see a lot more stories about corporate failures and bank failures," said Andy Tan, general manager of the Standard and Poor's office in Singapore. "That's a foregone conclusion."

That was also the message of Thailand's prime minister, Chuan Leekpai, who said in an interview before his visit to Washington this week, "Quite frankly, no, it has not passed yet."

Gloomy statistics and forecasts seem to confirm that much more trouble is ahead. Inflation is rising -- the annualized rate in Thailand is 8.9 percent, in South Korea it is 9.5 percent, and in Indonesia, it's a whopping 32 percent. Growth forecasts have been shaved across the region, with Thailand's economy now expected to shrink by as much as 3.5 percent this year. And new projections say millions more Asians will be out of work this year. In Thailand alone, unemployment is at 1.5 million and is projected to rise to 2 million in 1998.

One uncertain element haunting the region is the outlook for China, where economists and others fear a growth slowdown in the world's most populous nation could dramatically disrupt Southeast Asia's recovery efforts. While Chinese officials insist they can achieve 8 percent growth this year, down from 8.8 percent last year, most analysts believe that is optimistic. Last week, Chinese officials said foreign investment could drop by a third, the $40 billion trade surplus could evaporate, and millions more Chinese workers could face unemployment. Most analysts are forecasting growth slowing to 4 percent to 7 percent.

A nightmare for Southeast Asia would come if China decided to devalue its currency, the yuan, to make its exports more competitive. That would not only disrupt the Hong Kong dollar's current "peg" to the U.S. greenback -- it would likely set off a wave of competitive devaluations that would further hamper efforts at economic revival.

That appears unlikely, at least for a while. Chinese officials have insisted they have no plans to devalue; the currency is not freely convertible, and China has a $140 billion war chest of foreign reserves. But even without a devaluation, China is feeling pressed to keep competitive for export markets and investment dollars.

Sanjoy Chowdhury, managing director of Fraser-AMMB Research Pte Ltd. in Singapore, said that after the last Southeast Asian downturn in 1985, it was two years before the region's economies were able to revive. This time, he said, he does not expect a turnaround until the latter half of 1999. "We may be close to the bottom, but I'm not sure it will be turning up anytime soon," Chowdhury said.

The main trouble spot remains Indonesia, which is grappling with its worst economic and social crisis in three decades. After 32 years in power, President Suharto was unanimously elected to another five-year term Wednesday by an assembly he largely controls. But the future still looks uncertain, with food riots and attacks on ethnic Chinese in the provinces, unrest on college campuses in the capital and questions about whether the country's new vice president, B.J. Habibie, is a credible successor to Suharto.

Even more troubling are concerns that Suharto, 76, is preparing to jettison the country's IMF reform package, which he has reportedly described as violating the country's constitution. The latest disbursement has already been held up, prompting fears the entire package is unraveling. And Suharto's new cabinet, named yesterday, is made up of cronies, including one of his closest business associates, and his eldest daughter. Their appointments are likely to unnerve foreign investors.

The battered Indonesian rupiah has reflected those concerns, plummeting to as low as 12,500 to the dollar, down from around 2,500 last fall. Even at 9,000 rupiah to the dollar, which now seems an optimistic level, most Indonesian companies were technically bankrupt, imports of badly needed raw materials and medicine were prohibitively expensive, and much of the country's manufacturing activity had ground to a halt.

Continuing deterioration in the world's fourth most populous country, many observers believe, could spark a social explosion or a massive outflow of economic refugees. Local newspapers have reported that 40 boatloads of illegal Indonesian immigrants have landed in Malaysia in the last three weeks.

"If you're looking at structural changes that need to be put in place, then yes, that looks like it's happening around the region, in South Korea, in Thailand," said Bruce Gale of the Singapore-based Political and Economic Risk Consultancy group. "The Achilles' heel, though, is Indonesia -- and this is why you have this parade of government officials from all over the place flying into Jakarta."

Several analysts said political factors may still cause problems even in countries making progress toward recovery.

In Thailand, where Prime Minister Chuan has received widespread praise for adhering to strict IMF guidelines, the government faces a parliamentary vote of confidence this month. In the Philippines, which generally has been less affected by the regional crisis, elections in May could see a populist former movie actor, Joseph Estrada, become the next president. Foreign investors and local business leaders question whether Estrada would continue the liberalization and privatization measures now underway.

Even in South Korea, where newly elected President Kim Dae Jung's bold pledges of reform have managed to stabilize the markets after months of financial turmoil, the president faces an unruly National Assembly controlled by his opponents, and a revolt by powerful conglomerates against his reform plans.

There are also serious new concerns that Malaysia may be in worse shape financially than the government in Kuala Lumpur has acknowledged so far.

With countries now liberalizing their rules on foreign ownership, and with everything from banks to factories offered at fire-sale prices, this is supposed to be the time when overseas companies come to Asia to look for bargains -- bringing with them badly needed capital.

So far, there has been plenty of browsing, but few signed deals.

"Not many people are prepared to put their money in," said Lim Say Boon of Crosby Corporate Advisory in Singapore. "Anyone with longer than an 18-month horizon would find this a great time to get in," he said. But "if you're the CEO of a very large corporation, you have to answer to your stockholders once a year."

What is missing now -- besides a solution in Indonesia -- is a single country or market to act as a catalyst to the region, similar to the role Japan played in kick-starting Asian economic growth a decade ago. This time, despite pressure from the United States and Western Europe, Japan has shown little enthusiasm for intervening to spur its own stagnant economy and start buying more exports from its Asian neighbors.

The other two large markets in the region, China and India, are consumed by their own internal problems.