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Asian economic turmoil poses minimal threat

Dennis Krutzler of Largo-based Paradyne knows all about the ups and downs of the markets in Southeast Asia.

He directs the company's sales efforts in the Pacific, a region whose economic woes took center stage in the global economy last week. A collapsing stock market in Hong Kong spread with lightning speed around the world, sending the Dow Jones Industrial Average to its worst-ever one-day point loss.

Krutzler has watched with interest the wild gyrations of Wall Street, but he's more concerned with the currency turmoil that has gripped Southeast Asia in recent months. With the dollar rising against the Thai baht, the Malaysian ringgit and a host of other Asian currencies, Paradyne's exports of high-speed modems and other data communications technology to the Pacific have fallen slightly this year because of sticker shock.

"We're seeing a number of projects in those countries scheduled for the fourth quarter being scaled back," Krutzler said. "The currency crisis is really turning out to be a crisis."

The currency problems have led to rising interest rates in those countries, which could curtail consumer spending and investment.

What does this mean for the U.S. economy? The grand marshal of all economists, Federal Reserve Board Chairman Alan Greenspan, testified to Congress on Wednesday that the spillover from Southeast Asia "can be expected not to be negligible." In Greenspan-speak, economists say, that means the effects on the U.S. economy will be slight.

"The region still has some good long-term prospects," said Gary Thayer, a senior economist with A.G. Edwards & Sons in St. Louis. "Business will slow down a bit for a year or so, which is something rather normal for emerging economies."

For that reason, Krutzler is not panicking. Paradyne, a former unit of AT&T Corp., has been exporting to Asia for 17 years. Krutzler considers the decline in business this year a onetime setback that will have only a minimal effect on Paradyne's bottom line. And once the crisis is over, Krutzler said, Southeast Asia "will continue to be a strong market for us."

His "I'm not going to worry" attitude is shared by executives of other companies in Florida and elsewhere that either trade with Southeast Asia or have operations there. While Asia's problems will cause a number of American corporations to face lower exports, increased import competition and diminished returns on foreign investments, the size of the changes does not pose an economic threat here, analysts say.

Southeast Asia, among the fastest-growing regions in the world, accounts for only a fraction of total U.S. trade and economic activity. U.S. exports to Thailand, the Philippines, Indonesia and Malaysia _ the four countries most affected by the turmoil _ were only about 4 percent of last year's total.

Tampa Bay companies have a little more exposure to the region than do companies elsewhere in the United States. Exports to Southeast Asia were about 10 percent of the bay area's total worldwide exports of $1.9-billion in 1996. That percentage is for exports to all of Southeast Asia, though, not just the four countries in the news.

"For most American companies, the Asian market, excluding Japan, may not be as important as the European or the Latin American markets," said Man-Lui Lau, an economics professor at the University of San Francisco.

And against the backdrop of a vibrant American economy _ with steady interest rates, low inflation and nearly full employment _ companies are even more likely to shrug off the downturn in the Pacific.

"We're really not affected in any significant way," said Thomas Sansone, president of St. Petersburg-based Jabil Circuit Inc., which recently opened a new 150,000-square-foot factory in Malaysia.

Technology stocks such as Jabil's were among the hardest hit Monday when the Dow industrials plummeted 554.26 points, or 7.18 percent. Jittery investors especially frowned on any company that had exposure in Asian markets.

IBM plunged 8.1 percent Monday to close at $90; Intel was down 6.5 percent, closing at $74.75. The broad sell-off swept up Jabil, which supplies technology giants such as Hewlett-Packard and Cisco Systems with circuit boards and other electronic components. Jabil's shares lost 6.7 percent to close at $45.

Because most of Jabil's components made in Malaysia end up in personal computers or data communications equipment sold in the United States and Europe, the company does not have to worry about lower sales in Southeast Asia.

Ironically, Jabil actually might benefit from the weakening of the Malaysian ringgit against the dollar. So might a host of American companies that do assembly work in Southeast Asia.

The robust dollar reduces those companies' labor costs and other overhead expenses. But those gains might be short term if the weaker currency leads to inflation in Southeast Asia. "Workers may want higher wages to compensate for a costlier standard of living," said Thayer of A.G. Edwards.

The most immediate impact of a strengthening dollar is on trade. U.S. exports tend to fall as foreign companies put off their purchasing and wait for the currency to stabilize. At the same time, it's easier and less costly for America's trading partners to export more to the United States.

American businesses competing in a global economy could suffer from declining sales and face increased competition from less expensive Asian imports. But economists have played down that threat.

For one thing, the dollar's rise has yet to hurt overall U.S. exports. Companies have cut costs and have developed leading technology that helps keep their products in demand overseas.

The experience of St. Petersburg-based Advanced Plasma Systems Inc. bears that out. The 50-employee company makes equipment used in the manufacturing of circuit boards. Manufacturers in Southeast Asia are clamoring for its new technology.

"Our business has doubled in Southeast Asia this year," said Jerry Wilder, chief operating officer.

And inquiries keep coming in so fast that he has added an international sales manager. "At this point, we are not running for cover," he said.

The potential flood of new imports from Southeast Asia also has a silver lining. The price of imported electronic components _ computer memory chips, for example _ is likely to fall in coming months.

Retailers are gearing up for a currency windfall. Companies such as Pier 1 Imports and Kmart buy much of their apparel, toys and housewares from China, India and Southeast Asian countries. They expect the currency turmoil to translate into cost savings.

But consumers aren't likely to see lower prices in time for Christmas. "We ordered for Christmas a long time ago," said Jim Vanderbleek, imports coordinator for Bradenton-based Champs Sports, a division of Woolworth Corp.

On the whole, economists paint a picture in which the positives and negatives seem to balance out. Yet, they caution that the aftershocks from Asia could be felt well into next year.

Just like economists to be wishy-washy. A classic joke about the profession says that if all economists were laid end to end, they would not reach a conclusion.

How Asian currency crisis affects U.S. trade

The currency crisis in Southeast Asia can affect U.S. companies that trade with those countries or that have manufacturing operations there. Here are three possible scenarios:

Imports:

Companies like Pier 1 Imports, Kmart and J.C. Penney that import apparel, toys and housewares can save money because of the currency turmoil. How? As the dollar rises against the Thai baht, for example, that dollar buys more Thai goods. That doesn't mean U.S. consumers will see lower prices right away. Sometimes the benefit doesn't materialize for months.

Exports:

The flip side of cheaper imports, however, is weakened U.S. exports. The rising dollar means American-made products are more expensive for consumers in Thailand and Malaysia. So automakers and consumer products companies, for instance, could see declining demand in those markets. But several of these large U.S. companies, such as Procter & Gamble and Gillette, say they have less than 10 percent of their sales in Southeast Asia.

Operations:

The rising dollar is a mixed bag for companies that have factories in Southeast Asia. On the bright side, the variable costs of doing business in those countries could fall in the short-term. For example, St. Petersburg-based Jabil Circuit, which has a plant in Malaysia, could spend less on labor and local materials. But some economists predict that the weak local currencies in these countries could lead to inflation.

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