ADB worried about fiscal positions in ASEAN

ADB worried about fiscal positions in ASEAN

MANILA (AFP): The Asian Development Bank (ADB) warned
Wednesday that rising government budget deficits and debts in
Indonesia, the Philippines and Thailand could hurt investments
and hamper their recovery from crisis.

It warned that Asia's economic recovery from its worst
financial crisis in mid-1997 was far from over.

The ADB also expressed concern at the "uneven" pace of bank
and corporate restructuring in the region.

Noting that economic recovery in Asia "is far from complete,"
it said political uncertainty was inhibiting some countries'
efforts at reform and recovery.
In its latest report on the regional recovery, the Manila-based
ADB said budget deficits and public debt in relation to gross
domestic product of Indonesia, the Philippines and Thailand were
soaring.

"The fiscal positions of Indonesia, Philippines, and to a
lesser extent Thailand, leave cause for concern," it said.

"If fiscal positions were to deteriorate further, future
pressures on interest rates stemming from rising public debt
could hamper investment," the "Asia Recovery Report" warned.

Indonesia, the Philippines and Thailand are among the slowest
to recover from the 1997-1998 crisis, which plunged most of the
region into recession.

The currencies of the three Southeast Asian nations had also
plunged in recent months, causing additional pressure on their
economies.

The ADB report said that at the end of September 2000, the
Indonesian rupiah has plunged 19 percent, the Philippine peso by
more than 13 percent and the Thai baht by 11 percent.

The ADB predicted that Thailand would take about a year to
catch up with pre-crisis economic growth while Indonesia may take
two years or more.

In the Philippines, where President Joseph Estrada is fighting
an impeachment bid after being embroiled in an alleged bribery
scandal, "perceptions of political risks are also increasing,"
the ADB said.

Pradumna Rana, the manager of ADB's regional economic
monitoring unit, told AFP that among the reasons for the
worsening fiscal positions of the three economies was their
growing need to finance bank and corporate restructuring.

"The budget deficits had been rising because some of them had
to follow an expansionary policy -- they had to spend more than
the government earns," he said.

Equity losses also hit the three countries and many other
economies in the region this year.

The sharp rebounds in share prices in 1999 have been seriously
eroded or even wiped out in some cases during 2000, the ADB said.

On the impact of the recent depreciation of the currencies of
Thailand, Philippines and Indonesia on their economies, Rana said
the worrying trend was higher interest rates that could dampen
recovery.

"To finance deficits, the government has to borrow which means
higher interest rates and that could choke off recovery of
consumption expenditure and private investments," he said. "It is
not happening now but this potential is there."

The ADB report forecast economic growth in Thailand in 2000 at
5 to 6 percent, Indonesia at four percent and the Philippines at
three to four percent.

For South Korea and Malaysia, the ADB predicted more than
eight percent growth this year.

Among the five countries most affected by the crisis, South
Korea remains the frontrunner in recovery, already surpassing its
pre-crisis per capita income peak, the bank said.

"Recovery there is improving the cash flow positions of banks
and corporates, prompting the flow of bank credit, which in turn
is fueling recovery.

"Other countries have yet to experience this virtuous circle,"
it said.