Asia hope for new economic miracle in the 21st century

Asia hope for new economic miracle in the 21st century

By P. Parameswaran

SINGAPORE (AFP): "The next century will be the Asian century"
-- that proud boast by Asian leaders is no longer heard, but
analysts say steady reform and restructuring following a
financial crisis could well lay the ground for another, more
sustainable regional economic miracle.

"The question of an Asian century, to a certain extent, rests
on the Asian governments themselves and the key issue is: how far
are they willing to go in embracing financial reforms?" said Bill
Belchere, head of Asian economics and fixed income research at
Merrill Lynch.

The financial crisis which erupted in mid-1997 slammed the
brakes on Asia's explosive economic growth and laid bare
deficiencies in the region's key financial systems.

Belchere said financial reforms were crucial for Asia to ward
off increasing competition in the new millennium and, more
importantly, to raise rates of return for investors.

Citing an example, he said investments by Malaysia, Thailand
and South Korea in the last decade made up about 40 percent of
their gross domestic products (GDP) but average annual return was
only seven to eight percent.

Chile and Taiwan however made similar returns by investing
only 20 percent of their GDP.

"So it is not difficult to argue that there is a misallocation
of resources in much of Asia due largely to a flawed financial
sector," Belchere said.

He said the region should not merely give lip service to
reforms in its effort to woo back investors who bailed out of the
region following the financial crisis which erupted in mid-1997.

"The proof is in the pudding and they have to do some
proving," he said.

Reputed U.S. professor Paul Krugman, a strong critic of Asia's
growth strategy before the financial crisis struck, said the
export-driven region could regain its lost luster in the new
millennium.

"It is a story that is starting to look as if it was a happy
ending," he said in a lecture in Bangkok last week, even while
noting that much of the region was handicapped by banks burdened
with huge bad loans.

Krugman was derived in large measure from unproductive
investment of money borrowed from abroad.

The Massachusetts Institute of Technology professor now thinks
a repeat of the Asian financial crisis is unlikely.

But Stratfor, an influential U.S.-based private intelligence-
gathering company, said Asia would go through a painful phase
following the crisis.

Except for a few countries with relatively healthy banking
systems, Asia would not recover this decade, it said in a 2000-
2010 global forecast released on Dec. 20.

Stratfor said Asia's economic problems could not be solved
without a "wrenching remake" of its financial system and that
most countries in the region, including Japan and China, lacked
the will and political capacity to carry this out.

It predicted that Asian economies would remain in a "long-term
stagnation mode" with "intermittent upturns" mistaken for
recovery from the financial crisis.

"The most important issue in the region would be the political
consequences of this economic deterioration," Stratfor warned.

But Bhanu Baweja, an economist at financial research firm
IDEAglobal.com, said the financial crisis was a "short term"
problem which could not alter the view on Asian dominance in the
21st century.

"In the big scheme of things, I don't think the Asian crisis
-- which is going to fade in importance in a few years -- is
going to alter what Asia is capable of achieving in the next 100
years.

"In terms of return on capital, Asia will be much higher than
anywhere else in the world. If I were to buy a stock for the next
100 years, for example, it would be an Asian stock," he said.

Baweja said Asia's growth would be driven by its manpower.

"Manpower, Asia's bane now will be a boom tomorrow.

"Already Asia's economies are powering themselves as knowledge
societies and in a matter of time the region will be rich in
intellectual property," he said.