Southeast Asian free trade project 'in danger'<\/p>\n
TOKYO (AFP): Southeast Asia's currency crisis may force the
\nregion to reconsider an ambitious free trade project as gaps
\nbetween its economies widen over the next few years, analysts
\nsaid.<\/p>\n
The crisis, triggered by Thailand's de-facto devaluation of
\nthe baht on July 2, will be scrutinized during the annual
\nmeetings of the World Bank and the International Monetary Fund
\n(IMF) in Hong Kong.<\/p>\n
Members of the Association of Southeast Asian Nations (ASEAN)
\nare expected to play down the crisis during the Hong Kong
\nmeetings and their annual economic ministers' meeting next month
\nin Malaysia.<\/p>\n
Analysts warn that Asia and the rest of the world should not
\nunderestimate the crisis, saying an overall review of economic
\nprojections including a free trade zone plan may be necessary.<\/p>\n
\"Following the currency crisis, the possibility that AFTA
\n(ASEAN Free Trade Area) will end in failure is getting bigger,\"
\nsaid Shunta Yamato, a senior analyst in charge of Asian economies
\nat Daiwa Institute of Research.<\/p>\n
The group plans to set up a free trade zone, with Brunei,
\nIndonesia, Malaysia, the Philippines, Singapore and Thailand
\nscheduled to cut tariffs by 2003, Vietnam by 2006, with Burma
\nand Laos following two years later.<\/p>\n
Analysts said the currency crisis would widen differences in
\neconomic development in Asia by the turn of the century and may
\nforce ASEAN to revise the deadlines and start with a clean slate.<\/p>\n
\"Thailand will suffer a serious slump in the short term, but
\nmay finally join the side of the advanced team together with
\nSingapore and Malaysia because it has fairly developed production
\nbases and personnel resources,\" Yamato said.<\/p>\n
\"On the other hand, Indonesia and the Philippines and the
\nremaining ASEAN members will have a hard time catching up with
\nthe front runners as their economic weakness will be exposed,\" he
\nsaid.<\/p>\n
According to the World Bank, East Asian economies' gross
\ndomestic product (GDP) would slow to an average 7.6 percent
\nbetween 1997 and 2006 from 9.2 percent in 1987-96, while South
\nAsia's would ease to 5.9 percent from 5.4 percent.<\/p>\n
Analysts said the inflow of investment in the region would
\ncontinue in the long run with demand for infrastructure -- roads,
\nelectricity and telecommunications -- expected to remain stronger
\nthan any other region.<\/p>\n
But they warn that investors would be more cautious about
\ntheir money flows into Asia and discriminate between countries in
\nterms of investment destinations.<\/p>\n
\"A lot of money flowed into the region without proper
\nassessment of investment risk,\" said Taiki Saito, an analyst at
\nYamaichi Research Institute.<\/p>\n
\"From now on, investors will be looking not at the region in
\ngeneral but countries seen as appropriate recipients of funds,\"
\nSaito said.<\/p>\n
The Institute of International Finance said last week money
\nflows to developing countries were expected to fall in 1997 for
\nthe first time in three years due to a sluggish capital flows to
\nAsia.<\/p>\n
The Washington-based research group, set up by U.S., Japanese
\nand European financial institutes, said net fund inflows to
\nemerging markets were forecast to fall 7.1 percent from last year
\nto 261.4 billion dollars this year.<\/p>\n
The decline would be mainly due to a 24.5 percent drop in
\nmoney flows to Asia to 107.1 billion yen this year because of the
\ncurrency crisis, the institute said.<\/p>\n
Analysts said Asian economies should recover because the
\nplunges in the value of their currencies against the dollar would
\nboost exports, but the timing of such export-driven growth was
\nunknown.<\/p>\n
\"Theoretically, exports should pick up thanks to the decreased
\nvalue of their currencies against the dollar and the yen,\" said
\nNobuyuki Saji, a senior economist at Nikko Research Center Ltd.
\n\"But it is still uncertain when strong exports will visibly
\ncontribute to their economic growth,\" Saji said.<\/p>\n
Yamato said: \"When Mexico faced its crisis three years ago,
\nthe United States fully committed itself to solving the problem
\nunder the framework of NAFTA (North American Free Trade
\nAgreement), and as a result, Mexico showed clear recovery boosted
\nby brisk exports to the United States and Canada.<\/p>\n
\"But in this case, there is no America,\" Yamato continued.
\n\"Japan may be urged to play a similar role, but it cannot play
\nlike Washington did because Tokyo is a pure investor, which does
\nnot have a flexible and large enough market to accept production
\ninflow from the region.\"<\/p>",
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