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.