IMF's Neiss sees Asian recovery by late next year

Wed, 14 Oct 1998 | Source: REUTERS

SINGAPORE (Agencies): The International Monetary Fund (IMF) expects crisis-hit Asian economies to start growing again in the second half of next year, Hubert Neiss, director of the Fund's Asia-Pacific department, said on Tuesday.

"Presently, we expect it in the second half of next year," he told reporters on the fringes of the annual East Asian Economic Summit.

"The turnaround will come earlier. That means negative growth rates will get smaller and smaller, finally we will get positive growth in the second half of next year, but this is not very precise timing," he said.

Neiss said a lot would depend on how global markets stabilized and how countries pursued their programs of reform.

"The implementation of strategy for recovery, microeconomic policy and structural policies," were crucial, he said.

"And very important for the region is an early recovery in Japan and a calming of the current turbulence in financial markets," he added.

But he ruled out an "external stimulus" from Japan in the "immediate future" that could aid the recovery of other battered economies in the region despite Tokyo's feverish pace in recent days in tackling its banking crisis.

Neiss said he expected the timing of recovery to apply to all the crisis-hit Asian economies, including Indonesia, which has been the most savagely mauled.

The Indonesian rupiah has lost more than 70 percent of its value against the U.S. dollar since Asia's crisis began in July last year. Millions of its people are sliding below the poverty line.

Other currencies in the region have also fallen heavily, but Neiss would not be drawn into predicting where they would go next.

While "extreme (currency) volatility has always been a disturbing factor", he said, "I cannot make predictions on the basis of the day to day movement of the currency."

Neiss said Thailand's recovery was important to the IMF as Bangkok had "by and large implemented the strategy of the IMF program in Asia".

Neiss said Indonesia needed an orderly political succession following the traumatic events of May, when President Soeharto quit in the face of riots in which hundreds of people were killed.

Soeharto's successor, B.J. Habibie, has promised elections in the middle of next year.

"What is important for the economic program is that the political transition is as smooth and orderly as possible," Neiss said.

"If it is not, you will have again speculation, undesirable fluctuations in the exchange market and so on. Political stability is essential for economic success," he said.

Neiss said he is also satisfied with the new bankruptcy laws that Indonesian passed in August.

"So far, we are satisfied with the new law," IMF director for Asia-Pacific Hubert Neiss told journalists.

Neiss is scheduled to visit Indonesia later this week as part of a regular monthly IMF review of the country's progress, which is expected to lead to the disbursement of a further $1 billion in IMF assistance.

Indonesia implemented ambitious new bankruptcy legislation in August, which replaced an antiquated Dutch law dating back to the turn of the century.

Bankers and lawyers say it's too soon to judge the effectiveness of the law however, although it did succeed in having a real estate company - PT Modern Realty - declared bankrupt on Monday, the first company in years to find itself declared bankrupt in Indonesia.

Indonesian companies are saddled with billions of dollars in debt, which makes a working bankruptcy law vital, creditors say.

For the whole of 1999, Neiss expects a flat performance from the Indonesian economy, with the gross domestic product only expanding in the following year.