Southeast Asian 'Tigers' still roaring ahead

Southeast Asian 'Tigers' still roaring ahead

KUALA LUMPUR (Reuter): Once sellers of raw materials to the industrialized world, Southeast Asian countries are now rapidly- industrializing "Tigers" with no thought of turning back

Some are further along the road than others, but all talk more about the pace than the direction of development even though some, like communist Vietnam, are just beginning.

Indonesia and Malaysia have made impressive strides. In Thailand progress has been slower while the Philippines is still suffering from the economic legacy of profligate former president Ferdinand Marcos.

Indonesia has progressed quickly in the last three decades in transforming a mainly agriculture-based economy towards a more industrial economy, economists said.

Industrial production contributed some 24.3 percent of Indonesia's gross domestic product (GDP in 1995, compared with 9.2 percent in 1989. Agriculture's contribution to GDP has declined steadily to 17.2 percent last year from 49.3 percent in 1969, the government says.

"The structure of our economy has changed a lot. You don't have to look far. Just comparing 1973 and now there has been a very significant change," said Miranda Gultom, an economist attached to the Ministry for Economics and Finance.

The Indonesian economy is more diversified now, with the manufacturing sector making up about one-third of GDP, followed by the agricultural sector and service industries.

Christianto Wibisono of the Center for Business Data, said, however, there was still much to be done because Indonesia had many advantages in certain sectors which could be developed.

"We should have the fifth largest paper industry in the world based on the potential we have. We should manufacture more value- added products than exporting raw materials," he said.

"We are still behind Thailand in terms of export ability. Our economy is still very much resources-based. The government needs to encourage industries which could add more value to our products," Wibisono said.

He said Indonesia should focus on industries with a natural base here rather than those needing a high level of imports.

"The high import contents have made our export products uncompetitive," he said.

Economists said another important structural change was the declining dependence on oil exports to finance the budget.

From 1984/85 to 1996/97, income from the oil sector, as a proportion of total government revenues, diminished to an estimated 18 percent from more than 65 percent, while income from taxation had grown to 70 percent from 30 percent.

Malaysia

Nowhere has the change been more dramatic than in Malaysia, once a purveyor of rubber, tin and palm oil, now among the world's largest producers of semiconductors.

The share of primary commodities in the economy has fallen by more than half to around 20 percent of GDP over the last decade. That of manufactured goods has more than doubled to about 31.5 percent, Malaysia's Economic Report for 1995/96 says.

"I think the industrialization process is well under way. From nowhere, it has become the world's leading maker of semiconductors. There is no looking back for Malaysia," said Liew Yin Sze, economist with J.M. Sassoon & Co in Singapore.

"There is fairly consistent decline in dependence on commodity exports. It has happened everywhere."

Economists say a key factor in the transformation was a recession between 1985-87 in the OECD countries, which caused a sharp drop in prices of tin, rubber and palm oil -- then Malaysia's primary exports.

The Malaysian economy went into a tailspin. The impact was so severe, another racial conflict between Malays and ethnic Chinese of the type which traumatized the country in the late 1960s looked likely.

A series of dramatic economic policy changes by Prime Minister Mahathir Mohamad, who opened up the country to foreign investment and privatized state-owned companies and infrastructure projects, pulled it back from the brink.

The response was huge. Malaysia's economy has been growing since at more than eight percent a year.

Under Mahathir's Vision 2020 program to make Malaysia a fully industrialized nation by that year, economists say GDP growth will have to be maintained at that level.

Sassoon's Liew said that although manufacturing now dominated the economy, this would change as it moved toward more capital intensive, high-technology and service-oriented industries.

Thailand

In Thailand, economists say the government will have to work harder on human resources, infrastructure and an outdated tax system to ensure a transformation to full industrialization.

With little virgin land to be opened up to farming and the prospects of a dramatic improvement in agricultural prices slim, dependence on primary exports must decline.

"Inadequate infrastructure is one of the major constraints," said Supavud Saicheau of the Phatra Research Institute. "And about only one third of our workforce finishes high school."

Thailand has good industrial potential, particularly in the automobile industry and in electronic products, said Chalongphob Sussangkarn, president of the private Thailand Development Research Institute.

"But the government will have to chip in much more before that can happen," he said.

Thailand's transition from agriculture economy to industrialized economy began to show in 1985 when manufactured goods exports first exceeded primary commodity exports.

Another crucial step took place in 1993 when medium-to-high- tech products made a splash and started to replace exports from labor-intensive industries as the economy's growth engine.

To maintain traditional strength in commodities in an increasingly diversified economy, Chalongphob said Thailand must cultivate niche markets.

For example, instead of trying to increase all rice exports, Thailand should focus only on top quality grades such as fragrant rice, he said. Exotic fruit sales were another potential growth area, he added.

"We cannot just sell average agricultural products which other countries with cheaper labor can catch up very soon," Chalongphob said. "We should try to make some of our primary commodities high-value luxury goods."

The Philippines is perceived to have lagged in the transition to industrialization, which Joey Salceda, research director at SBC Warburg in Manila, attributed to "financial hemorrhages" during the rule of late president Ferdinand Marcos.

He said the hangover of debt left by Marcos had dashed Manila's dream of keeping pace with others in the region.

"Commodity exports from the Philippines, ranging from copper, gold, sugar to coconut oil, between 1974 and 1980 really boomed. It could have made the country the first tiger in Southeast Asia if it had been able to wisely use its export receipts while building up its industries," Salceda said.