Asian confidence may return in 1998

Asian confidence may return in 1998

WASHINGTON (Reuters): Confidence in Asia's battered economies should recover slowly this year, paving the way for modest growth in 1999 and solid recovery the following year, the International Monetary Fund said on Monday.

The IMF's semi-annual World Economic Outlook said that steep declines in Asia's currencies and in financial markets showed that there was room for "relatively sharp rebounds."

"While uncertainties persist in Indonesia, it is clear that elsewhere, commitments to implement the necessary reforms and adjustment measures have strengthened substantially," said the report, completed before Indonesia announced its latest package of IMF-backed reforms.

"As needed policies are implemented and external policies improve, confidence should recover gradually during 1998, paving the way for a moderate rebound in growth in 1999 and solid recovery by 2000."

For this year, the IMF projected a 5.0 percent decline in economic output in Indonesia and a 3.1 percent decline in Thai output. South Korea would see the smallest decline -- just 0.8 percent, rebounding to growth of 4.1 percent in 1999.

The fund gave no 1999 forecasts for Thailand or Indonesia.

The projections were sharply lower than those released in December in a special report examining the causes and solutions to Asia's financial woes.

"The largest downward revisions have been for the three economies most affected by the crisis...where the drying up of private foreign financing, together with large currency depreciations and declines in asset prices that have occurred are causing sharp contractions in domestic demand," the latest report said.

Malaysia, the Philippines and several other East Asian countries will be affected by similar forces but to a lesser extent, the IMF said.

But all these countries will see "sharp slowdowns" of domestic demand and imports in 1998, with real GDP likely to decline in the worst-hit.

The Philippines' real GDP is forecast to grow 2.5 percent, down from the December forecast for 1998 of 3.8percent, compared with 1997 growth of 5.1 percent.

Malaysia's forecast for 1998 growth is the same as in December, 2.5 percent, compared with 1997 growth of 7.8 percent.

Spillover effects are also forecast to slow growth in Hong Kong, the IMF said, with 1998 real GDP growth forecast at 3.0 percent, down from the December forecast of 4.1 percent growth; 1997 economic growth was 5.3 percent.

The IMF last year put together multi-billion dollar rescue deals for the three countries. Its officials have praised the authorities in Thailand and South Korea for sticking to the terms of the bailouts, but have been cautious about Indonesia.

The IMF said in the latest report that the speed of Asia's turnaround would depend to a large extent on how much trade balances were affected by the currency declines and on whether finance was made available to the troubled tiger economies.

The private sector also had a role to play in ensuring that the Asian recovery came sooner rather than later. Creditors needed to roll over debt, extend maturities of existing credits and provide new medium-term financing.

"The recent agreement of Korea's private creditors to a voluntary debt exchange that restructured almost all bank debt is therefore particularly welcome," it said.

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