Asia told to continue with reforms for total recovery

Asia told to continue with reforms for total recovery

SINGAPORE (AP): A senior U.S. diplomat warned Tuesday that recent optimism buoying markets in Asia was essentially unfounded, and urged nations in the region to continue economic and political reforms needed to spur a full-fledged recovery in growth rates.

"I see no fundamental change in Asia over the past 90 days to justify a sustained rally in the financial markets, much less to sustain economic growth in the years ahead," U.S. Ambassador to Singapore Steven Green told a gathering of businessmen in the Southeast Asian city-state.

Many Asian currencies and stock markets have rallied in recent weeks, despite a prognosis from most economists and observers that the regional economic downturn will continue at least into 1999.

Some observers said an influx of foreign funds had lifted the Asian market following rate cuts by the United States and major European countries.

"As happy as I am for those of you who have made money and increased your company values as a result of the recent surge in stock prices, I do not believe that the long-term fundamental problems of these markets are over," Green said.

Noting the rapid rise and subsequent fall in Asian markets in the midst of the economic crisis earlier this year, Green predicted that "this pattern of volatility will continue for some time to come."

He attributed the recent market optimism in some Southeast Asian countries to "short-term money" entering relatively small markets.

For instance, he noted that the combined stock market capitalization in Singapore, Thailand, Malaysia and Indonesia totaled only US$300 billion, less than the market value of a single large blue chip stock on the New York Stock Exchange.

Green said that while some money may be flowing into Asian financial markets at the moment, other private capital continues to flow out. He argued that more direct investment and loans to the region were absolutely necessary for any return to sustained growth in Asia.

"While investors are reputed to have short memories, I have a feeling that the bankers who have lost billions in Asia over the past year are not going to forget the lessons of this crisis any time soon," he said.

He said U.S. bank executives have told him recently that the lending market for Asia remains virtually suspended, and that most American companies considering the purchase of Asian businesses as mere "window shopping."

"Investors - both creditors and equity investors - cannot deal with the level of uncertainty that now exists in most of the countries in the region.'

Fundamental changes were required before long-term investors would return, he said.

Asia needs to press ahead with political and economic reforms that will ensure "greater transparency, proper bankruptcy laws, and an honest and effective judicial system."

Unfortunately, many governments in the region seem more concerned with bolstering their political positions than pursuing painful reforms, said Green in answer to a question after his speech.

"A lot of the resistance to financial reform is actually resistance to political reform," he said.