PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | CLIPS | 1998 | ASIA WILL RECOVER

Asia will recover -- slowly, experts say Economists say growth should return by the second half of 1999, but the market for U.S. exports won't bounce back for some time. Bill Mongelluzzo Journal of Commerce Wednesday, October 21, 1998 CENTURY CITY, Calif. -- The Asian financial crisis will bottom out soon, and some nations, such as South Korea and Thailand, should begin to experience economic growth by the second half of 1999, some experts predict. But unlike the rapid, uninterrupted growth enjoyed by the Southeast Asian "Tigers" for more than 30 years, the economic expansion that could resume next year will be painfully slow and will involve deep restructuring of the Asian way of doing business. Economists, academics, government officials and representatives of international institutions who gathered in Los Angeles Monday to assess the financial crisis that has plagued Asia for the past 15 months were guardedly optimistic. "It's not clear we're coming out of the crisis yet," John Wolf, U.S. ambassador for the Asia Pacific Economic Cooperation, told a conference sponsored by the Pacific Basin Economic Council. "But there are some good signs," the APEC official said. South Korea and Thailand, two countries that began to restructure their economies as the crisis developed, and generally followed the guidelines laid down by the International Monetary Fund, will lead the way back to economic growth. "The recovery scenario will begin in 1999, with Korea and Thailand experiencing positive growth by the second half of the year," said Flemming Larsen director of research at the IMF. Indonesia stable, fragile Even Indonesia is achieving a measure of stability, after first resisting the IMF formula and experiencing a massive capital outflow and severe devaluation of its currency. Indonesia's economy remains fragile, however, and a resumption of growth next year is not assured, speakers at the PBEC conference said. U.S. exports to the nations that caught the Asian flu have declined 14%, and this contributed significantly to a 37% increase in the U.S. trade deficit. Even when the Asian nations begin to experience growth next year, exporters should not expect the region to be a strong market. "Domestic consumption will be crushed for some time to come," said Richard Drobnick, director of the Center for International Business at the University of Southern California. Growth will come initially from foreign investors who see opportunities in the region's low wages, educated and productive work force and well-developed infrastructure. Americans and other investors will respond to those opportunities to rekindle Southeast Asia's export industries, but growth will be measured and careful. "In four to five years, Asia will be a much more efficient place, so give us some time," said Chote Sophonpanich, chairman of Green Spot Co., a holding company for oil and gas, agribusiness and distribution and warehouse enterprises in Bangkok. A primary challenge facing Southeast Asia is therestructuring of the region's economies while stemming the return to poverty that is plaguing many of the nations. Out of and into poverty During its era of economic growth, Southeast Asia lifted more than 370 million persons out of poverty and into the middle class, but more than 100 million have slipped back below the line, said Julian Schweitzer, director of strategy and operations for East Asia and the Pacific at the World Bank. "Poverty is increasing at an alarming rate, and this is hurting the new middle class," he said. In Indonesia, for example, there will be a doubling of the number of people slipping into poverty before the crisis is over, he added. Poverty can lead to social unrest and violence. This is especially true in Indonesia, where the Chinese business class was a target of ethnic cleansing. Both domestic and foreign investors will avoid any country where social unrest is present, the speakers said. But the Asian nations are trying to correct some of the most glaring flaws that caused the financial crisis. They are passing bankruptcy laws for the first time, doing away with protectionism and cronyism, closing down unstable financial institutions, making their legal systems more transparent and reducing over-capacity by closing down under-performing industries. Push by Japan needed Another key to resuming growth will be for Japan, the largest economy in the region, to push forward aggressively with its own economic restructuring. "Unless Japan's economy expands fast, it is unlikely that exports will pull the other nations out of the crisis," Mr. Schweitzer said. Although Asia's return to growth will be slow and painful, it will happen, said Mr. Larsen of the IMF. "I still believe that the next century will be Asia's," he said.