Asia govts turn big spenders in bad economic times

Asia govts turn big spenders in bad economic times

Jennifer Chen, Reuters, Singapore

Malaysia became the latest in a long line of Asian governments
trying to spend their way out of recession by announcing one of
the region's most expensive fiscal stimulus packages on Friday.

Neighbor Singapore has been even more generous with a package
worth a full seven percent of the city-state's entire annual
output. In GDP terms that is seven times larger than the stimulus
plan being considered by the United States Congress.

The trouble is, analysts say, such largess probably won't work
given the region's long addiction to exports as the primary
engine for economic growth.

"For sure, more aggressive monetary and fiscal easing will
help the regional economies cushion the blow from the
synchronized global downturn -- but only marginally," said Keon
Lee, an economist at JP Morgan Chase in Hong Kong.

"It almost goes without saying that relative growth
performance is determined -- at least in the current downturn --
primarily by exposure to external demand and global electronics
cycles."

Still, such doubts aren't making Asian governments shy about
whipping out their checkbooks for a little fiscal therapy,
particularly with voters to keep happy.

In its 2002 budget, released on Friday, Malaysia said it
planned around US$7 billion in net development expenditures,
which analysts say make up the bulk of fiscal pump-priming
measures. Outside of China and Japan, Malaysia's package is the
biggest in East Asia in money terms.

Singapore is running a close second with its recently
announced $6.2 billion of stimulus measures.

It's also not a coincidence that Singapore and Malaysia's
economies are among the most open in Asia, analysts say. Deustche
Bank estimates that exports accounted for 70 percent of GDP in
Singapore in 2000 and over 100 percent in Malaysia.

Elsewhere in the region, Hong Kong's chief Tung Chee-hwa
announced a $1.9 billion relief package during his annual policy
address earlier this month.

Thailand passed an expansionary budget for 2002 in September
that included $1.3 billion in pump-priming measures.

China, in keeping with a tradition started in 1998, will
continue to spend massive amounts to keep the economy growing at
a fast clip of around seven percent.

Korea is about to join the spending spree with expectations of
$1.45 billion in stimulus measures when it unveils its 2002
budget next Tuesday.

Only Indonesia and the Philippines are silent on the fiscal
front, and that is only because they do not have the money to
spend given high levels of public debt, analysts say.

And yet analysts argue these spending plans will do little to
turn around these economies.

"To pull their economies out of recession would require a huge
amount of stimulus spending," said Fred Hu, senior international
economist at Goldman Sachs in Hong Kong.

Put simply, there was no way Asian governments can make up for
the shortfall in exports.

That said, these measures can at least take the edge off the
global economic downturn by boosting sentiment and putting more
cash into the hands of domestic consumers for them to spend.

All that, of course, depends on how strong and sound a
country's economic infrastructure is. Hong Kong and Singapore are
seen by analysts as the most likely to succeed with their plans.

"Both countries are debt-free and have been consistently able
to run sizable budget surpluses. Both countries are well
positioned in the current downturn to employ fiscal policy as an
effective counter cyclical tool," said Lehman Brothers economist
Rob Subbaraman in a report.

While debt is not too much of a concern for Malaysia, which
has an external debt burden of just over 40 percent, it has been
running fiscal deficits that could smart in the long run.

In its 2002 budget, Malaysia is projecting a deficit of 18.6
billion ringgit or 5.0 percent of gross domestic product -- its
fifth straight budget deficit.

Analysts say such persistent shortfalls limit the scope to
which it can loosen fiscal policy, though the country's
comfortable balance of payments position is a help.

Finally, some analysts are voicing discomfort as to how far-
sighted these government are with their fiscal plans, especially
given China's presence as a major contender.

"I think one has to weigh whether in each of these countries,
whether the objective of the fiscal stimulus is to try to
stimulate short term demand ... or you're trying to build a more
long-term competitive positioning," said Lena Tan, analyst at
Fortis Investment Management in Hong Kong.