Risk of new Asian crisis remote despite slump: UN

Risk of new Asian crisis remote despite slump: UN

BANGKOK (Reuters): Asia's developing economies face a chillier economic environment this year as growth falters in the United States and Japan, but the risk of a second regional economic crisis is remote, a UN agency said on Tuesday.

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) said in its annual survey that the slower world economy would reduce growth in the region by one to two percentage points this year compared with 2000.

ESCAP Executive Secretary Kim Hak-Su told a news conference the south and southwest Asia region would grow 5.8 percent in 2001, while southeast Asia would grow 4.0 to 4.5 percent and east and north Asia 5.6 to 6.4 percent.

The forecasts were revised down earlier this year due to the unexpectedly harsh global slowdown.

"Growth will almost certainly slow down on account of slower demand for exports," Kim said.

"But the region, and more particularly the crisis economies, are far less vulnerable to a crisis in 2001."

Many Asian economies, particularly Indonesia, the Philippines and Thailand, are still struggling to recover from the financial crisis that hit the region in 1997.

Kim said short-term debt across the region was now significantly below 1997 levels, while their foreign reserves were comfortable, making another crisis unlikely.

He said the main challenge faced by Asia-Pacific's developing countries was maintaining a healthy pace of growth in the face of a less favorable external environment.

Another major problem facing the region's economies was attracting the aid they needed to develop, ESCAP said.

"It is no secret that donors are now fatigued," Kim said.

The report said there was a declining trend in aid payments as a proportion of GDP of donor countries, and the "present level of per capita contributions is a minuscule proportion of per capita income in most donor countries".

"To some extent, the aid fatigue in donor countries (is) due to the perception that much of the aid is misappropriated by corrupt officials and does not serve the purpose of promoting growth in the poor countries," it said.

"This perception may have some validity. A portion of aid may be either misappropriated outright or misused for projects which make no lasting contribution to economic growth."

ESCAP said countries in the region should be wary of excessive public spending to try to kick-start their economies.

"In view of the rising levels of public debt, countries need to take a fresh look at streamlining and rationalizing public spending in order to avoid the debt trap in which debt servicing obligations rise faster than revenues," it said.

It also warned that while weaker exchange rates would help support exports, they also carried risks.

"Weaker exchange rates have stimulated exports but should they persist they will increase the risk of inflation. In addition, stable exchange rates are important as anchors for investment decisions, particularly by foreign investors," the ESCAP survey said.

"A moderate degree of instability in the exchange rate is unlikely to do significant harm in the short-term; over the medium to long-term it could reduce the flow of foreign investment and thus reduce access to vitally important foreign technology and markets."