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