SE Asia needs reforms to catch neighbors

SE Asia needs reforms to catch neighbors

KUALA LUMPUR (Reuters): Southeast Asia lags behind Japan and its neighbors in overcoming the region's financial crisis and will catch up only if it embraces structural reforms, Singapore Senior Minister Lee Kuan Yew said on Wednesday.

Singapore's founding father said in a speech in Malaysia that the countries of Northeast Asia -- Japan, South Korea, Taiwan, China and Hong Kong -- will be able to match the science and technology of the West within this century.

But, he said, the nations of Southeast Asia are less well placed than their neighbors to the north to post high growth rates because Southeast Asia has failed to open up its economies as much to trade and investment.

He cited a decline in Southeast Asia's share of total East Asian gross domestic product to 7.6 percent from 9.7 percent since the financial crisis erupted in mid-1997.

"Southeast Asia can overcome this setback by making the necessary changes and completing their structural reforms to be less vulnerable in another market crisis," Lee said in a speech to business and government leaders in Kuala Lumpur.

The former prime minister spoke on the third day of a four-day visit to Malaysia, his first in a decade and one aimed at easing longstanding tensions between the sibling nations. He was due to hold a news conference on Thursday before departing.

Lee said a rebound in the crisis-hit economies of Southeast Asia may have come too early, before structural reforms were completed.

Meanwhile Northeast Asia has responded to the crisis by liberalizing its economies and opening up key service sectors. He cited the merger of South Korean car makers with foreign firms, and China's decision to join the World Trade Organization.

After the recent summit between North and South Korea, Northeast Asia is in a "much better position, with greater prospects of investments and growth in the 21st century", Lee said.

Answering questions after his speech, Lee said Silicon Valley would not be what it is if not for America's willingness to import the talent it needed to create the world's largest technology hub.

"If you look at Bill Gates...he's not really depending on himself but very hardcore, capable and experienced young men he has gathered in the past," Lee said, referring to the Microsoft Corp chairman.

But an open economy was only good if it offered adequate investor protection, Lee said.

He said Singapore was business-friendly but not to extent of being corrupt. "That is the premium we have today."

Lee said Indonesia's "political crisis" had made the 10-member Association of South East Asian Nations (ASEAN) a less attractive economic partner of Europe and the United States.

"Together, ASEAN countries have to overcome the crux of the problem, that is to restore international interest and confidence in ASEAN's potential," he said. "We have to do this at a time when Indonesia has yet to overcome its political preoccupations."

He said implementing the ASEAN Free Trade Area by 2003 will make the region more attractive to foreign investment, but it will not be enough, and ASEAN will have to revitalize itself. "I do not have any formula to achieve this," he said.

Lee, who was Singapore prime minister from its founding in 1959 until 1990, said Malaysia and Singapore had pursued their own paths of development since separating in 1965, and among Southeast Asian states were best prepared for the new economy.

On Tuesday, Lee said after meeting Malaysian Prime Minister Mahathir Mohamad that both Singapore and Malaysia were keen to iron out longstanding problems.