Asia in recovery, mostly.

I heard a report on the radio recently marking the fifth anniversary of Thailand's currency devaluation.

In case you've forgotten, this is the event that sparked the Asian monetary crisis, spreading to South Korea, Indonesia, Malaysia, and the Philippines. Even Japan, whose economy and currency were among the strongest in the world, felt the repercussions. Analysts initially blamed the crisis on heavy debts and currencies pegged to the U.S. dollar. More recent explanations include financial imbalance, government interventions, and weaknesses in financial and credit institutions, not to mention poor accounting oversight.

Up until July 2 of 1997, when the baht fell, the region looked to be a gold mine for suppliers to the industry. Plans were in the works to greatly expand pulp and paper capacity by adding new machines and building greenfield mills, especially at Asia Pulp & Paper (APP), of the Sinar Mas Group. A World Bank report listed seven existing pulp mills in Indonesia in 1997 and another 10 proposed. Future prospects for China also looked good. It had been a smooth transition of leadership early in the year when President Deng Xiaoping died, although there was mild uncertainty over Great Britain's hand-over of Hong Kong.

In the aftermath of the monetary crisis, China's economy has been among the most robust in Asia. It's economy grew 7.3% last year and will likely exceed that growth rate by the end of 2002. Both Metso and Voith are finding it a lucrative market. Among recently announced orders are a 200,000 metric tons/year Metso board machine for Sun Paper Industry Group and a 175 metric tons/day Voith inkjet paper line for Minfeng Special Paper Co. South Korea, with 3% growth last year, should finish 2002 even better.

Reforms in Thailand, Indonesia, and other Asian countries have helped most to rebound from the slump of a few years ago, but there are still challenges. Japan, for one, is working to free itself of a banking crisis fueled by bad debts.

APP is working on a complex debt-restructuring program to free itself of roughly US$13.9 billion it owes its many creditors. Its success would further bolster the recovery, but it will be a struggle. The effort has been hampered by low pulp and paper prices and political instability in Indonesia. Fiber supply issues have also become a concern. To further muddy the water, Arthur Andersen (of Enron disrepute) served as auditor for APP and some of its Indonesian subsidiaries during the critical years of 1997, 1998, and 1999. APP's CFO and Executive Director Hendrik Tee resigned in May 2002.

Meanwhile, investors in the United States are struggling to maintain confidence in the stock markets as prices for some shares seem to be in free fall. Overly-creative accounting practices, in part intended to keep stocks in a favorable light, have come under the harsh glare of media and regulatory scrutiny. The fallout may actually have some positive effect on the U.S. paper industry. Compared to the euro, the U.S. dollar has weakened. The two currencies were roughly equal in value as of the middle of July. Perhaps investors will also find the relative stability of paper company stocks more appealing than those of the once-glamorous high tech and dot-corn wunderkinds.

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DONALD G. MEADOWS Senior Editor;

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