Southeast Asian economies face a mess in 1998

Southeast Asian economies face a mess in 1998

SINGAPORE (AFP): Ailing Southeast Asian economies face a
further deceleration in 1998, and a recovery will depend on swift
official action on much-needed reform, investment house SocGen-
Crosby warned yesterday.

"The massive exchange and interest rate shocks will lower
growth, and in every case, growth this year will be lower than
last year and the outlook for 1998 is of a further deceleration,"
it said.

Most Southeast Asian economies have been hit by financial
turmoil stemming from a currency crisis sparked by the de facto
devaluation of the Thai baht in July.

"The pain will be harsh as the economies face a vicious circle
of weak domestic activities leading to income and demand
compensation which in turn leads to a further fall in domestic
demand," SocGen-Crosby said.

The warning was contained in a report released at a media
briefing here by the investment house, an affiliate of Societe
General of France and Crosby Securities of Britain.

It forecast a slide in gross domestic product growth rate
across the region for 1998 from this year.

SoGen-Crosby forecast 1998 GDP growth of 6.4 percent for
Singapore, down from 7.2 percent this year, and 5.4 percent for
Malaysia from 7.5 percent.

It predicted negative 1.2 percent growth for Thailand from 0.8
percent, 5. 0 percent for Indonesia from 5.5 percent, and 3.6
percent for the Philippines from 4.4 percent.

"Recovery will depend on how fast policy makers can enact
vital measures and this will lead to marked differentiation in
how they are perceived over the next year," SocGen Crosby said.

Neil Saker, head of regional economic research at SocGen
Crosby, noted that Singapore, Indonesia and Hong Kong were the
economies that had "better managed systems with the ability to
confront new challenges."

Thailand, Malaysia and the Philippines however, were
considered "losers who are poorly managed and slow to react," he
said.

Thailand was experiencing a meltdown, with hardly any
credibility in its policies amid an unstable political situation
and the collapse of its financial sector, Saker said.

Thai Prime Minister Chavalit Yongchaiyudh has announced his
resignation but his successor has yet to be named.

The Philippines' economic environment appeared to be
"deteriorating," compounded by key tax reforms held up in
congress, a high interest rate regime, political risks ahead of
presidential elections in May 1998 and the legal backtracking of
the Supreme Court on laws such as the oil deregulation law, Saker
said.

The securities firm also cited banking risks in Malaysia due
to excessive lending to speculative sectors and government focus
on growth as a priority over stability as factors that would see
Malaysia weakening into the next two years.

Saker said Indonesia would emerge quickly from the slowdown
with the right policy response from the authorities, adding that
technocrats would ensure the implementation of the reform agenda
in that country.

But risks remained in Indonesia, such as the impact of
corporate foreign exposure and the drought from the El Nino
phenomenon, which could hurt the macroeconomy.

SocGen-Crosby said Singapore's growth would remain robust, led
by electronics and chemicals in the manufacturing sector, the
lynchpin of the city-state's economy.

It forecast that the Singapore dollar would strengthen to
1.4400 by the end of the year from Thursday's rate of 1.5778.

Singapore's reputation as a regional hub for trade would also
see it benefit from the export boom stemming from the regional
currency crisis which has made Southeast Asian exports cheaper.

SocGen Crosby also expressed confidence that the peg of the
Hong Kong dollar to the US dollar would hold.

"The costs of defending it are less than the costs of
abandoning it," said Saker.

SocGen-Crosby's report said Hong Kong's fundamentals as well
as its fiscal and banking environments remained sound although
higher interest rates were expected in the short-term.

"By 1999 things should look better" for Southeast Asia "and by
2000 they should be back on track," Saker said.