Second wave Asian economic tigers face woes

Second wave Asian economic tigers face woes

SYDNEY (AFP): Asia's second wave of economic tigers -- Indonesia, Thailand and Malaysia -- face problems because they are not managing their growth as well as the first group did, the head of Australia's biggest company warned yesterday.

John Prescott, managing director of steel and resources giant BHP Co. Ltd. said the three countries had achieved "stunning economic improvements" and great investment opportunities were evident in all three.

But there were signs they were not managing the growth as well as had Hong Kong, Singapore, Taiwan and South Korea at the same stage of their economic development.

"Current account deficits are creeping upwards, and so from a business perspective, macroeconomic instability and a sharp slow- down cannot be entirely ruled out," he said.

Prescott, delivering the "Asialink" lecture to a Melbourne business audience on the challenges of doing business in Asia, said the common link in Asia's economic transformation were the very high rates of growth compared to the rest of the world.

"The key question we continue to monitor at BHP are not only whether that growth can be sustained, but at what pace and in which countries."

BHP expected growth to continue in the range of historic performance, "say six to eight percent overall."

"However, there will undoubtedly be hiccups and variations based on the different stages of economic development country by country."

Mature economies like Hong Kong, Singapore, Taiwan and South Korea were now facing a variety of problems familiar to western industrialized economies such as environmental concerns, manufacturing capacity constraints, social welfare issues and so on.

"As a consequence, they face the challenge of remaining competitive at a time when their productivity performance has been declining and unit costs have risen."

He nominated a third group of Asian countries which he said were experiencing high growth resulting from trade and economic reforms -- Vietnam, Cambodia, China and India.

"Because these countries are in the process of integrating into the world economy, a bumpy ride is almost inevitable," Prescott added.

"Managing the change from a command to a market economy is tricky, and nationalist sentiments can mean sudden policy reversals. So I guess there are many opportunities which BHP and others are pursuing, but we keep a close eye on the risk and rewards equation."

Prescott said the region generally faced key challenges posed by bottlenecks caused by difficulties in finding and holding labor and in infrastructure such as power and transport requirements and sewerage.

But the growth opportunities presented by Asia were the reason 11 percent of BHP's assets were located in Asia and why the region would continue to figure prominently in the company's future planning.

BHP had outgrown the Australian market, he said. "Selling competitively in Asia often means producing there, with all the advantages of being close to and better understanding the markets."