Southeast Asia's recovery to slow if markets fall further

Southeast Asia's recovery to slow if markets fall further

MANILA (AFP): Southeast Asia's recovery from its worst
financial crisis ever may be scuttled if regional stocks and
currencies stumble further from their recent lows amid rising
interest rates, the Asian Development Bank (ADB) has warned.

But the Manila-based bank pointed out that the weakening of
regional currencies did not signal another turmoil similar to the
foreign exchange crisis which erupted in mid-1997, pushing the
region into recession.

The Indonesian rupiah, the Philippine peso, the Thai baht and
the Singapore dollar have sagged in recent weeks, partly in the
absence of political and economic reforms, as well as concern
over a potential US interest rate hike and worries the region's
key electronics sector boom will ease off, analysts have said.

Stock markets in the region have been depressed most of this
year, despite a few gaining ground in June.

"Is this the beginning of a new crisis? My answer is no
because so far there are no reasons to believe that," ADB's
director of programs Yoshihiro Iwasaki told AFP.

"But at the same time, I caution that if the trend continues,
it will have a number of negative impacts on overall recovery of
the region," warned Iwasaki, also the bank's acting chief
economist.

If Southeast Asia is unable to cushion itself from further
rises in US interest rates -- which itself could be heading for a
soft economic landing -- then investments crucial to fuel
economic growth in the region could slow down, Iwasaki added.

By pushing up the cost of funds, rate hikes could affect bank
profitability and corporate debt restructuring essential to stoke
economic growth.

Falling equity values in the region -- in some cases in tandem
with currency declines -- could constrain demand for new share
issues and force companies to differ or delay new projects, which
in turn could dampen overall recovery, he said.

Another key reason for the current problems in Southeast Asia
was the "unexpected" rapid economic recovery -- or what
economists call V-shaped recovery -- from the financial crisis
which started in 1997.

"Initially, it was very welcomed but there was some
overshooting, (including) substantial and remarkable recovery in
stock markets. So, part of the recent falls is obviously a
correction," he said.

The Indonesian rupiah has suffered its biggest plunge so far
this year, down 12 percent against the US dollar amid political
and economic concerns in Southeast Asia's largest nation.

The Philippine peso is down by about 10 percent against the
greenback, pressured by a Muslim insurgency in the south of the
archipelago, while the Thai baht hit a 10-month last week amid
concerns over the slow pace of banking reforms.

The Singapore dollar slumped to a 22-month low last week amid
worries over the slide of neighboring currencies and concerns
that semiconductor and personal computer-related demand may be
topping out.

Iwasaki said he was optimistic that Southeast Asia would be
able to contain the current problem as the region's defense
system was now stronger than it was in 1997.

"I must say that obviously the region is much stronger in
terms of financial sector regulatory framework, even corporate
governance than in 1997, much more ready now to absorb shocks
than before," he said, pointing to falling debt levels and more
competitive real exchange rate levels in the region.