WB still on 'red alert' over recovering Asia
WB still on 'red alert' over recovering Asia
TOKYO (Reuters): Asia's growth rates over the next decade will
depend more than anything on how governments privatize the huge
volume of assets acquired as a result of the region's financial
crisis, a senior World Bank official said on Tuesday.
Jean-Michel Severino, vice-president for East Asia and the
Pacific, said the bank was cautious about the region, whose
economic success was not assured despite its current rapid
recovery.
"We are staying on red alert," Severino told a seminar on the
lessons to be learned from the currency chaos two years ago that
plunged East Asia into a deep recession.
He said the region stood at a crossroads, with politicians in
a number of countries unsure what model of economic management to
adopt now that the immediate crisis was over.
Privatization would be a litmus test, Severino said. In most
countries, the state owns, directly or indirectly, more than half
the economy as a consequence of bank bail-outs. In the case of
Indonesia, the figure is more than 70 percent, he said.
Whether the inevitable privatization process results in more
open, transparent and equitable societies will be critical for
Asia's economic competitiveness, Severino argued.
"We think most Asian economies haven't made their minds up
which way they want to go," he said.
This was a legitimate political debate but, until it was
settled, policy contradictions would persist that would hamper
the region's economies.
"They will remain very vulnerable," Severino said. He
predicted heightened market volatility and the risk of fresh
financial shocks, especially if the export demand that is
currently boosting growth were to fall sharply.
The need for deep-seated structural reform and limited room
for maneuver on fiscal policy would also make it difficult to
sustain strong growth, he said.
Severino stressed that the World Bank was not seeking to
impose a specific free-market model on Asia. In particular,
holding up free-wheeling U.S. capitalism as an ideal would be a
huge mistake and would fuel resentment, he said.
But that did not mean the Bank should accept any set of "lousy
policies". Vietnam, for example, was following a development
model that was leading to failure, Severino said.
What was important was policy consistency. A country that
decides it wants to borrow from the international capital markets
must realize that transparency is vital for winning the
confidence of lenders and investors.
"If you don't, you'll hit the wall at some point," Severino
said.