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.