Asia recovery beats expectations: ADB, World Bank

Asia recovery beats expectations: ADB, World Bank

Alan Yonan Jr., Dow Jones, Singapore

Most Asian economies are rebounding faster than expected,
thanks to renewed demand for the region's exports and successful
economic stimulus efforts by local governments, two top
multilateral lenders said in separate reports issued Tuesday.

The assessments delivered by the Asian Development Bank and
World Bank in their semiannual outlooks for the region are
markedly more upbeat than in reports last fall when the view for
the global economy was clouded by the Sept. 11 terrorist attacks
in the U.S.

Compared with the recovery following the 1997-98 Asian
financial crisis, the current economic expansion is expected to
be less intense, but more broad-based, the ADB said. A key factor
in the outlook is a pickup in domestic demand spurred by
aggressive fiscal stimulus programs undertaken in a number of
countries.

The ADB is forecasting the Asia-Pacific region, excluding
Japan, to grow by 4.8 percent on average in 2002, up from 3.7
percent in 2001. The Bank expects the recovery to pick up pace in
2003 with growth of 5.8 percent. The scope of the ADB's Asia
Development Outlook includes all of Asia and the South Pacific,
excluding Japan.

The World Bank, which limited its report to East and Southeast
Asian nations, excluding Japan, predicted the region will grow by
4.7 percent in 2002, up from 3.5 percent in 2001. Growth for 2003
is pegged at 5.6 percent.

Across Asia, the economies expected to show the most
improvement this year are South Korea, Malaysia, Singapore and
Taiwan, with the latter two swinging from economic contractions
in 2001 to expansions in 2002.

The earlier-than-expected recovery in U.S. economic growth is
the main external factor behind the improved outlook for Asia,
although expected improvements in Europe will also play a role,
according to the reports. About 25 percent of Asia ex-Japan's
exports go the U.S., while 15 percent go to euro-zone economies
and 12 percent to Japan, the ADB said.

Rising commodity prices, after several years of steep
declines, will help countries like Korea and Thailand whose
economies rely on exports of such products, the World Bank said.
Rising stock markets across the region and generally stable
political environments in Southeast Asia, also were cited as
positive factors.

The biggest risk to the forecasts, the banks say, is the
possibility that U.S. growth won't live up to expectations.
Rising oil prices could put a crimp in the U.S. recovery, the ADB
noted.

Crude oil futures contracts on the New York Mercantile
Exchange are trading near a six-month high in excess of $26 a
barrel.

The ADB noted that turbulence in the Middle East is pushing
crude oil prices toward the upper end of the US$22-US$28 range
set by the Organization of Petroleum Exporting Countries.

But "market forces don't seem to warrant a long-run,
substantial increase in oil prices in the US$30s - we don't see
that," said ADB assistant chief economist Jean Pierre Verbiest.

Over the longer term, the primary risk to the region's
economies would be a failure of government leaders to take
advantage of their improving economies to move aggressively on
structural reforms, according to the banks.

"Governments should seize the moment to build upon recent
gains and deepen structural reforms to increase their chances of
maintaining private sector demand," Homi Kharas, the World Bank's
chief economist for Asia and the Pacific, said in remarks to the
American Chamber of Commerce in Singapore.

Such reforms also create a more attractive climate for
domestic and foreign investment, bolstering productivity growth
and fostering stable environment for consumers, Kharas added.

The ADB report drew attention to the lingering non-performing
loan problem that continues to weigh on banking sectors in
several of Asian countries.

"Nearly five years after the start of the financial crisis,
the five most crisis-affected countries show uneven progress in
resolving the problem of high levels of NPLs in the finance
sector," according to the report.

Of the four countries that implemented asset management
companies to deal with the bad loans, Indonesia and Thailand have
had the greatest difficulty.

The Indonesian government, which won praise recently for
finally selling its stake in PT Bank Central Indonesia, has fared
the worst, the ADB said.

"Plagued by accusations of corruption and political opposition
to the sale of distressed companies to foreign entities, the
Indonesian Bank Restructuring Agency, formed in early 1998, had
disposed of less than 7 percent of its assets by the end of
2001."

The overhang of NPLs in Indonesia and Thailand has retarded
economic recovery by delaying corporate restructuring, the ADB
said.

NPLs in Indonesia stood at 14.7 percent of total loans at the
end of 2001, down from 49.2 percent at the end of 1998. In
Thailand, the figure is 12.9 percent, down from 45.0 percent at
the end of 1998.

The Philippines, which initially had a less serious NPL
problem, was the only one of the crisis countries that did not
set up an asset management company. NPLs there have risen to 17.4
percent from 11.0 percent at the end of 1998, due to economic
weakness, political turmoil and the global slowdown, the ADB
said.