Asian recovery seen dependent on Japan aid<\/p>\n
BANGKOK (Reuters): Japan's assistance for crisis-hit Southeast
\nAsian countries under the Miyazawa Plan could serve as a catalyst
\nfor a revival of foreign capital flows to the region, a senior
\nAsian Development Bank economist said on Thursday.<\/p>\n
But ADB chief economist Jungsoo Lee said governments and
\nfinancial sectors in troubled Asian nations must also display
\ndetermination to sustain structural reforms needed for them to
\nride out the turmoil.<\/p>\n
\"The fact that Japan is willing to help is a key to boosting
\nmarket confidence, an important symbolic value. It will help
\nthese countries which depend very much on Japanese investment,
\nboth direct and portfolio investment,\" Lee told Reuters in an
\ninterview.<\/p>\n
Lee said part of the $30 billion Japanese aid for the region
\ncould be well used for improving its export competitiveness.<\/p>\n
\"Where money should go is difficult to say, but it is crucial
\nto enhance export competitiveness. The original trigger of the
\nAsian crisis in 1996 was the slowdown of regional export growth
\nwhich spawned and aggravated market concern,\" he said.<\/p>\n
Lee said, however, that Japan's own economic problems, the
\nyen's volatility, and market concerns about possible economic
\npolicy changes in China and Hong Kong have also sidelined
\ninvestors.<\/p>\n
\"What is happening in Japan and the overall performance of the
\nyen is very important...it is difficult to predict medium-term
\nrecovery because foreign investors have turned a bit more
\napprehensive due to uncertainties in Japan and China and anti-
\nmarket sentiment in Hong Kong and Malaysia,\" he said.<\/p>\n
The International Monetary Fund forecast last month that gross
\ndomestic product in Indonesia, South Korea, Malaysia and Thailand
\nwould average 0.6 percent growth in 1999 against a projected 8.7
\npercent contraction this year.<\/p>\n
It forecast that the four countries would likely recover to
\npost an average 3.0 percent economic growth in 2000 and raise it
\nfurther to 5.3 percent during 2001-2003.<\/p>\n
\"At least some countries like Thailand and Korea have managed
\nto turn the corner. They would likely come out of the woods
\nsooner than Indonesia,\" Lee said.<\/p>\n
Lee told an economic seminar here on Thursday that in the wake
\nof weak export performance, East Asian countries may need to
\nboost domestic demand with the help of more flexible fiscal and
\nmonetary policies.<\/p>\n
\"Boosting domestic demand is a way of utilizing excess
\ncapacities that have emerged in the region. More flexible
\nmonetary policies and manageable drawdowns of fiscal funds may be
\nno less important than structural reforms in providing an initial
\nimpetus of recovery,\" he said.<\/p>\n
He cited an IMF forecast that if regional countries, including
\nJapan, were to raise deficit fiscal spending by one percentage
\npoint of GDP, it could generate new demand leading to two
\nadditional percentage point GDP growth for these countries.<\/p>\n
\"We take a cautious but optimistic view. We expect foreign
\ncapital inflow will resume earlier than expected and believe that
\nwhen the dust settles, Asia will still remain the most favorable
\ndestination of global capital flows,\" he said.<\/p>\n
Lee said he shared an IMF view that bruised Asian countries
\nshould emphasize moderate, productivity-based growth and avoid
\nexpansion that depends on fast capital accumulation experienced
\nbefore the current crisis.<\/p>",
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