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.