IMF projects Indonesian economy to contract 4%
IMF projects Indonesian economy to contract 4%
WASHINGTON (Agencies): Indonesia continues to lag behind other recovering Asian economies because of delays in IMF-managed stabilization programs and the persistence of "political and social tensions," the International Monetary Fund said on Tuesday.
The IMF said in its latest global economic outlook that Indonesia has to work harder at restructuring state-owned banks and resolving a huge amount of corporate debt.
It predicted that Indonesia's economic contraction this year will abate to minus 4 percent from minus 13.7 percent last year.
The IMF also said the worst was over for Asia's one-time tiger economies and it forecast growth in Thailand and South Korea this year.
Reassessing its December review of the region's economies, the IMF changed its forecast for South Korea to 2 percent growth in gross domestic product from minus 1 percent; its prediction for Malaysia went from minus 2 percent to growth of 0.9 percent.
The IMF found Korea to be recovering faster than generally expected as a result of financial-sector reforms, a revived stock market and renewed interest by direct investors.
Malaysia also is performing better than expected largely because of stronger demand for Malaysian exports since September, when the government pegged the ringgit at 3.80 to the U.S. dollar, the IMF said.
The IMF affirmed its prediction that Thailand will break out of its economic slide this year, and that the Philippines will step up the pace of its recovery.
The IMF predicted an easing of the world's painful economic crisis and said global growth would rise to 3.4 percent next year from a projected 2.3 percent in 1999.
But the fund admitted its 2000 forecasts could be too optimistic. The U.S. economy might slow faster than expected, Japan could stay mired in recession or Europe would be unable to grow fast enough to take up the world economic slack.
"For 1999, I believe the risks are evenly balanced," IMF chief economist Michael Mussa told a news conference launching the fund's semi-annual World Economic Outlook, which looks at prospects around the world.
"For the year 2000 the forecast is for growth to recover to 3.4 percent, but there the balance of risks is on the downside."
Mussa said that the world economy looked healthier than it did just three or four months ago, when financial markets were worried about the situation in Brazil and elsewhere in Latin America. "I do believe that the worst of this crisis is behind us," he said.
But Mussa's latest comments were considerably more upbeat than previous assessments, when the fund warned that the world could tumble into recession.
"The risk of recession is comparatively low," he said. "The risk is maybe not so much that growth next year will be below growth this year, but that growth next year will not recover by the full percentage point that is our baseline forecast."
The report revised the IMF forecast for U.S. 1999 growth up to 3.3 percent, from a December 1998 forecast of 1.8 percent. But it lowered growth projections in Japan, Europe and Brazil.
"We do not yet see clear evidence that we have got a turning point in Japan," Mussa said. "We need a little bit more information that the bottom has occurred."
The comments dimmed hopes that Japan, where the economy shrank 2.8 percent last year, could soon emerge from its deep recession and the yen eased in response.
"There is some tentative evidence that capital controls helped reduce a country's probability of suffering a crisis during the Mexican and the Asian crises, but they were less effective for the type of widespread withdraw of investors from emerging markets that followed the outbreak of the Russian crisis," the IMF said.
Just two years ago the IMF, along with other institutions, was lobbying strongly for the relaxation of capital controls, arguing that free flows of money helped countries grow. The mood has now shifted and the institutions say countries must build the right infrastructure before easing controls.
The IMF admitted that its forecasts did not take account of possible problems stemming from the Year 2000 computer bug, which may make computer systems crash on Jan. 1 next year.
"The macroeconomic effects of the Y2K problem are potentially significant, but extremely difficult to quantify," it said. "They should not be exaggerated...but it is unlikely that all problems can be addressed in time."
The IMF is predicting that Asia's economies will all grow by 2000.
Table: Growth rates in inflation-adjusted GDP
1997 1998 1999* 2000*
------------------------------------------------
Australia 3.6 5.1 3.1 3.2
China 8.8 7.8 6.6 7.0
Hong Kong 5.3 -5.1 -1.3 3.1
India 5.5 5.6 5.2 5.1
Indonesia 4.6 -13.7 -4.0 2.5
Japan 1.4 -2.8 -1.4 0.3
Malaysia 7.7 -6.8 0.9 2.0
New Zealand 2.1 -0.3 2.7 3.3
Philippines 5.2 -0.5 2.0 3.0
Singapore 8.0 1.5 0.5 4.2
South Korea 5.5 -5.5 2.0 4.6
Taiwan 6.8 4.9 3.9 4.8
Thailand -0.4 -8.0 1.0 3.0
Vietnam 8.8 3.5 3.5 4.5
* Revised estimates
Source: International Monetary Fund