Asia still faces uphill battle: WB

Asia still faces uphill battle: WB

WASHINGTON (AFP): East Asia's recovering economies face an obstacle-strewn road back to full prosperity and could be badly hit by any prolonged slowdown in the U.S. economy, the World Bank warned Tuesday.

In its annual survey of developing economies, the Bank said Indonesia and the Philippines had the most fragile economies as they battle domestic instability.

Despite considerable region-wide economic progress since the 1997 crisis, stirred by low interest rates and soaring exports, the report said "reform fatigue" and political turmoil could still exact a heavy toll.

The report also cited external risks from "a hard landing in the United States, a renewal of financial difficulties in Japan, and a weakening of the electronics cycle."

While estimating that these threats had been "pushed back in time," the bank pointed out that the process of "working out" from under post-crisis difficulties was still incomplete.

"Higher interest rates, and/or slower growth could further worsen financial conditions for many firms and consumers still saddled with high debt," the Global Economic Prospects and the Developing Countries 2001 report said.

In the post-crisis era, East Asian economies would also be forced to divert precious resources into "overcoming the legacy of past institutional failures" including non-performing loans suffocating the banking sector, said the Bank.

The Philippines and Indonesia were especially at risk owing to political weakness, civil disturbances and a perception that their economies and business practices were still not transparent, it said.

There was painful reading for the government in Jakarta.

"Indonesia stands out from the other East Asian economies. It has been buffeted by continuing instability ... and inflation started a rapid rise in the third quarter," said the report.

Even in countries that are in better shape, there is a danger that "reform fatigue" could further slow reconstruction, said the bank, noting with dismay Malaysia's refusal to remove import tariffs on automobiles.

Smaller economies in the Asia-Pacific region also merited a mention with the Bank noting political turmoil in Fiji and the Solomon Islands and remarking that East Timor was slowly building an economy from scratch, after being all but burned to the ground after voting for independence from Indonesia.

Despite its woes, East Asia has a chance to progress by importing new business practices, technologies and knowledge, even if it lags far behind the developed world in penetration of electronic commerce, the report said.

The Bank said East Asian developing economies produced 6.9 percent growth in 1999, sharply up from a decline of 1.4 percent in 1998.

It forecast GDP growth of 7.2 percent in 2000 would moderate to 6.4 percent in 2001 as "sizzling" export growth cools.

In the long-term, the report foresees growth of 6.3 percent in regional developing economies between 2000-2010.

South Korea exhibited the fastest "V" shape recovery, the report said, while Indonesia "barely reached positive territory, following its difficult economic performance of 1998."

The plus factor for the region was largely the result of low and stable inflation and interest rates, while weaknesses stemmed from the slumbering equity markets in many economies.