Asian recovery likely to take time, study says
Asian recovery likely to take time, study says
DAVOS, Switzerland (Reuters): Recovery in hard-hit Asia will likely be slow, said economists and officials at the World Economic Forum's annual meeting.
The Asia Competitiveness Report, an annual study published by top economists including Harvard's Jeffrey Sachs, saw chances for an upswing this year after profound problems, following currency devaluations and investment outflows.
"But while the region is moving beyond the panic stage, and thereby poised for the start of economic recovery, the pace of recovery is still open to question, because of the remaining uncertainties about the clean up of debt and of long-term institutional reforms," the study said.
One Chinese economist in Davos said "some people need some dramatic changes, they need some good news" right away. But he said, changes will take time.
Necessary reforms, such as revamping the banking systems of such countries, also are costly.
Indonesia's coordinating minister of economics, finance and industry, Ginandjar Kartasasmita, said here the cost for his country's bank restructuring was about 29 percent of its gross domestic product (GDP), or US$40 billion.
In GDP terms, this was about in line with the costs of similar restructurings in Thailand and South Korea.
Baht
The problems which surfaced after the devaluation of Thailand's baht in July 1997 have left devastation in the region, with economies depending on trade for capital inflow, but hurting from the lack of trade financing due to the banking restructuring.
Even China, where growth is positive, faces a slowdown.
Official forecasts call for China's GDP growth to slow to about 7.0 percent this year from 7.8 percent in 1998.
Some non-Chinese economists predict China will have to devalue its yuan currency to stave off a strong drop in growth.
But Chinese economists here noted much of China's exports depend on the import of semi-manufactured goods, so a devaluation may do little good. Such a move could also have a destabilizing impact on the rest of Asia.
Lu Mai, executive vice secretary general and chief executive of the China Development Research Foundation, specifically ruled out any devaluation now.
But he said China could eventually move to allowing the yuan to fluctuate more freely, once the situation in Asia calms down.
Social unrest has also increased in many countries, raising fears about social unrest.
Asked what kept him awake at night, one Chinese economist here told Reuters: "Employment this year is number one".
"About 13 million people need jobs," he said.
Other estimates put the figure as high as 15 million. Economists believe China's moves to strengthen its social welfare net could soften the impact somewhat, however.
On the bright side, problems in some places have paved the way to reforms. Indonesia, where growth plummeted over 13 percent in 1998, has suddenly seen its government opt for elections in June, and consider independence for East Timor.
With respect to growth, Indonesia's Ginandjar expected momentum to pick up by mid-1999 and to continue in 2000, saying elections would help to stabilize the country and the economy.
"Once we have these elections -- and if the elections are...clean, free, just, transparent -- then whatever the result of the elections (this) is the expression of the will of the people. Then the government will begin (to gain) credibility, certainty will return," he said.