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.