RI situation feared to erode Asian gains

RI situation feared to erode Asian gains

SINGAPORE (AFP): A further deterioration in Indonesia's economic situation due to a lack of clear government policies could erode progress made by other Asian governments, an independent risk consultancy said.

"Indonesia is the wildcard. The policy mix of its government since last November has been so poor that is difficult to see how the situation can be turned around short of a change in government," Political and Economic Risk Consultancy Ltd. (PERC) said in a report received over the weekend.

"That is unlikely to happen without a further deterioration in both economic and social conditions. Such a deterioration could be corrosive on the rest of the region as well," PERC said.

"Certainly, it will put other governments to the test, just as the original meltdown in Thailand sent shockwaves through the region," the Hong Kong-based firm added.

PERC noted that while most Asian countries had fared well, or improved their ratings, on a scale measuring governments' responses to the eight-month long crisis, there was no mechanism "to isolate an errant country like Indonesia so that the fallout from its mistakes does not extend beyond its borders."

"It would seem that the deterioration in Indonesia is progressing so fast that it will be difficult to put such protection mechanisms in place in time even if other governments in Asia wanted to," PERC said.

Indonesia is now negotiating with the International Monetary Fund (IMF) on IMF-mandated reforms in an effort to revive its economy without aggravating social unrest.

The review came amid a PERC survey of 11 Asian countries, rated from zero to 10, with zero being the best grade possible, according to the wisdom of their government's policies in handling the crisis.

Singapore emerged on top with a grade of 2.47 followed closely by Hong Kong with 2.89. Indonesia rated an 8.

"The differences (between Singapore and Hong Kong) are too small to be meaningful. Both governments have acted as one would expect and hope of major financial centers. There have been no rude surprises or policy flip-flops," PERC said.

However, Indonesia was a major risk to Singapore, it said, noting that "should matters in Indonesia go seriously wrong, passage through the sea lanes vital to Singapore's survival could become hazardous," and that a "surge in economic refugees could also pose serious political and economic problems."

Any deterioration in the political and economic situation in Malaysia, which rated six on the scale, could also affect Singapore.

Thailand rated 7.25 in the survey and South Korea 8.27. But PERC said respondents to its survey "had not yet recognized the progress" Thailand's new government led by Thai Prime Minister Chuan Leekpai.

Investors have welcomed moves to address the crisis by Chuan's administration, which survived last week's no confidence motion, and was given resounding approval by the United States earlier this month for its policies.

"Our own assessment of conditions today is that a few governments which were rated very poorly early on in the crisis have at least learned from their mistakes and are now taking steps to put sounder policies in place," PERC said.

PERC gave kudos to the Philippines, Taiwan and China for managing their economies, saying the Philippines had been consistently implementing policies only now being enacted by South Korea and Thailand.