SE Asian growth sustainable only after fiscal reform

SE Asian growth sustainable only after fiscal reform

SINGAPORE (AP): Sustainable growth could return to Southeast Asia in three to five years, but only after financial and banking reform, Singapore's Deputy Prime Minister Tony Tan said in remarks made available yesterday.

"The end of the economic crisis in Southeast Asia, and the restoration of economic growth can only come about with the establishment of properly regulated and well supervised banking and financial systems," said Tan during a speech at the Massachusetts Institute of Technology in Boston on Saturday.

He said that regional economies can return to sustainable growth in three to five years provided "the governments in the region have the necessary will and determination" to implement such changes.

Tan argued that Southeast Asian banks were not equipped to handle the large influx of foreign capital in the 90's, and bank practices "have not kept up with the rapid pace of growth in the last few years."

He said between 1990 and 1996, the flow of private capital from industrial countries to emerging economies in the region grew five times, to US$200 billion from $40 billion.

He added that sound domestic banking systems were sometimes lacking during those years of easy money, and when confidence in Asia ebbed, large outflows of capital precipitated the crisis.

Although he did not specify what reforms were needed, regional and international bodies like the Asian Development Bank and the International Monetary Fund have stressed the need for greater transparency in the banking sector and more cautious lending practices.

Tan added that for the short term, the political and economic situation in Indonesian remained the "main worry," because the country occupies a large and important role in Southeast Asia.

Despite riding the storm better than its neighbors, Singapore has felt the pinch too, he said. The island republic's commerce and financial sectors, which rely heavily on regional trade and activity, have been "severely affected by the regional downturn."

But he said Singapore would reap the benefits of its sound macroeconomics, large foreign reserves, fiscal surpluses, and its well established trade with the strong U.S. and European economies.