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.