Ministers predict gloomy outlook for SE Asia

Ministers predict gloomy outlook for SE Asia

KUALA LUMPUR (AFP): Southeast Asia faces an "increasingly uncertain" economic outlook this year amid the U.S. slowdown and Japan's still-stalled recovery, ASEAN finance ministers say.

In a draft joint ministerial statement obtained by AFP on Thursday, the ministers predict average economic growth of 4.5 to 5.0 percent for 2001 compared with 5.3 percent last year.

Stronger domestic demand will help compensate for the fall in exports, the draft says.

Ministers from the 10 members of the Association of Southeast Asian Nations will meet in the Malaysian capital on Saturday and Sunday. Officials have been holding preparatory talks since Wednesday.

The draft statement notes sharp falls in U.S. share prices and the rise in the number of U.S. firms announcing layoffs and earnings downgrades.

"The Japanese economy continues to be hampered by structural problems within the banking and corporate sectors and is unlikely to provide stimulus for growth."

Growth is also expected to moderate in the European Union but will be mitigated by relatively robust domestic demand there.

"With G-3 economies rapidly losing momentum, the outlook for the ASEAN economies has become increasingly uncertain," says the draft statement, which is dated April 2.

Export growth in Southeast Asia has already fallen sharply since late last year and foreign direct investment is expected to remain subdued in the near term, the draft says.

ASEAN members are taking measures to mitigate the slowdown "through easier fiscal and monetary policies to the extent that they do not compromise medium-term fiscal sustainability or financial stability."

Privatization will continue, partly to lessen the burden on government borrowing to finance budget deficits.

In the longer term corporate restructuring will remain "our top priority until the banking and corporate sectors are able to function normally."

Officials are working to develop a "vibrant capital market in the ASEAN economies" to reduce dependence on bank borrowing.

The draft declaration praises moves to establish a regional currency swap arrangement to help avert future financial crises, involving the ASEAN members plus China, Japan and South Korea.

It says monetary authorities are considering ways to stabilize foreign exchange markets though bilateral payment arrangements "and in the longer term the establishment of a single common currency or exchange rate system in ASEAN."

A workshop will be convened in June to discuss a common currency. Currency swap

Meanwhile Malaysia on Thursday proposed an alternative mechanism to prevent any IMF involvement in a Southeast Asian currency swap plan aimed at averting future financial crises.

But ASEAN's senior finance ministry officials said no agreement has been reached on the issue in preparatory meetings.

Samsudin Hitam, secretary general of the Malaysian treasury who chaired the meeting, told reporters an alternative surveillance mechanism was put forward and debated.

He declined to give details.

Malaysia opposes any role for the International Monetary Fund (IMF) in the plan known as the Chiang Mai initiative.

This aims to link the international reserves of the 10 ASEAN nations with those from China, Japan and South Korea and Japan to provide greater resources in future currency crises.

ASEAN finance ministry and central bank officials are holding talks Thursday and Friday before a two-day ministerial meeting from Saturday.

Officials from China, Japan and South Korea are not taking part in the current talks but will join their ASEAN counterparts Sunday.

Sathit Limpongpan, director general of fiscal policy in Thailand's finance ministry, told reporters that there were various views on the IMF role but "everyone agreed that there should be an ASEAN consensus."

"The bottom line is that we want to achieve the bilateral swap arrangement but in any international arrangement, we need a compromise, we need to negotiate with the other three countries," he said.

Sathit said he was "positive" that the grouping could reach agreement on the plan. "I have a positive thinking about that."

The Thai official said the aim "is to have a clear framework for the conclusion of the arrangement between ASEAN and those three countries, possibly before the meeting in Honolulu."

ASEAN finance ministers will meet their counterparts from China, Japan and South Korea in Honolulu in May on the sidelines on the Asian Development Bank (ADB) meetings.