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.