Asia pressured to adopt reforms in private sector

Asia pressured to adopt reforms in private sector

MANILA (AFP): The economic slowdown in the United States will
force Asian nations to implement reforms in the private sector
which many of them had tried to evade for the last three-and-a-
half years, the World Bank says.

Driven by the booming U.S. economy, much of Asia has been
growing strongly after being mired in a recession following a
financial crisis which erupted in mid-1997.

But with growth slowing in the world's biggest economy, Asia's
economic expansion will also be hit.

Against such a scenario, the region had little alternative but
to speed up reforms to strengthen the economy and enhance
investment flows, World Bank Group managing director Peter Woicke
told AFP at the end of a seven-nation regional tour.

"The biggest issue in Asia which has to be addressed in most
of the countries is really the willingness to restructure
companies," said Woicke, also the executive vice-president of the
International Finance Corporation (IFC), a World Bank arm
promoting private sector investment in developing countries.

The Asian financial crisis exposed the weaknesses of the
region's companies which foundered as a result of overborrowing
in foreign currencies.

Experts had recommended painful restructuring of these
companies so that the banks which lent them money could also
tackle the resultant problem of snowballing non-performing loans.

But many Asian nations circumvented the restructuring process
and delayed corporate governance and other financial reforms
because their economies had started growing again rapidly after
the financial crisis.

What Asian companies needed now was not more borrowings or
lendings but more equity, Woicke said.

"In order to get the equity, companies have to restructure so
that banks can face up to the problem of NPLs (non performing
loans)," he said. "But everything is at a standstill because they
don't want to restructure."

Delayed restructuring of companies has dampened the capital
ratios of banks, which are reeling from bad loans.

This deprived banks from providing loans to genuinely healthy
companies, dampening investments and curtailing growth. "This
vicious circle has got to be broken," Woicke said."

He said the booming economy of the United States had helped
absorb much of Asia's exports and pulled the region out of
recession shortly after the financial crisis.

But U.S. economic growth has abruptly slowed with predictions
of a deepening downturn.

"But sad as it is, I think it (the U.S. slowdown) is going to
foster the reform process in Asia," Woicke said, citing
Indonesia, Thailand and South Korea in particular.

"I think for a while there was the view in these countries
that you can grow out of this restructuring problem by having
fast growth again. But this is not feasible or doable," he said.

Woicke said the reform situation in Southeast Asia
particularly "is not as good as I would like to see it" and
warned that if the region did not buck up, it could lose to China
the battle of wooing long term foreign investments.

"Clearly, the (Southeast Asian) countries are not seeing
enough long term investments. We see interest to invest in these
countries but it is still much less than it was three, four or
five years ago," he said.

On the other hand, Woicke said quite a lot of investments were
going into China where "the government has changed completely to
emphasize the importance of the private sector.

"I find it fascinating as local companies are now keen to
adopt corporate governance, environmental knowledge. In China,
things are moving relatively rapidly today and I think this is
also a challenge to Southeast Asia," he said.