Economists differ on impact of SE Asian currency woes

Economists differ on impact of SE Asian currency woes

TOKYO (AFP): Currency weakness following the recent turmoil in
Southeast Asia is expected to delay any redress of the trade and
current account deficits of affected economies until at least
1999, economists said.

While the pace of the weakening in the currencies of Southeast
Asian countries has slowed somewhat, Nikko Research Center
analyst Masaki Shiroyama said "further active selling of these
currencies is expected if bad news about their economies emerges.

"The economies in these countries are expected to start a
moderate recovery in 1999, but there is one condition for this
scenario -- implementation of long-term economic policies aimed
at improving economic fundamentals," Shiroyama told AFX-Asia, an
AFP-affiliated financial news wire.

"If they implement short-sighted economic policies just to
head off pending problems, my scenario will not materialize," he
said.

Shiroyama said that "depending on the size of possible further
falls in the local currencies, ASEAN economies in 1998, except
for Singapore, could be worse than my forecasts, as costs of
imports are rising."

He saw no improvement in either the trade or current account
deficits of Thailand and Indonesia in 1997 and 1998, with only a
minor improvement prospective for the Philippines and Malaysia.
Sakura Research Institute economist Shunsuke Bando said: "The
negative impact on these economies of the recent currency
declines are expected to continue into the first half of 1998.

"In the second half of 1998, these economies are expected to
start to recover," Bando said.

"As a result, economic activity in 1999 is expected to be back
to normal levels, that is, levels seen before the currency
declines started," he said.

But Bando did not expect the strong growth in gross domestic
product (GDP) of eight-to-10 percent seen in 1997.

"Rather, their economies are expected to continue to grow at
the six-to-eight percent level," Bando said.

"This is due to expected strong export growth, which will
start to emerge in the second half of 1998," he said.

The fundamental problem confronting the region was how the
countries restructure their economies to change their balance of
exports in order to move further up the technological ladder and
produce higher value-added products.

Bando said Southeast Asian countries would face increased
competition in exports and be forced to change their export
profile so as to respond to challenges from newer exporters such
as India.

"They will have no choice but to strengthen exports by using
foreign capital," he said.

Even though speculative investment capital has flowed out of
the region following the recent turmoil, longer term productive
capital investment is continuing, economists said.

"Following the currency declines, only short-term foreign
speculators such as securities traders and bond traders withdrew
from the region," Bando said, with others remaining "on
expectations that strong GDP growth will continue intact."

Despite recent more stable regional foreign exchange markets,
the focus remains on South Korea, which has escaped most of the
speculative attention.

Shiroyama said South Korea was most likely to be the next
target of speculative foreign currency selling as "its foreign
currency reserves are almost at the same level as Thailand."

South Korea's exports have not grown significantly although
"its currency has not fallen as sharply as ASEAN currencies
have," he said, but adding that if the won weakens further,
exports can be expected to move ahead sharply.